Three Ways To Avoid Probate
When a loved one passes away, you may hear a legal term being discussed, depending on whether the decedent had an estate plan and the details of that plan. The legal term is “probate,” and it refers to the process of probate administration.
For context, probate is a legal procedure that occurs when someone passes away. It includes the involvement of a “probate court” that is empowered to oversee the distribution of the decedent’s property.
The probate court can also appoint a representative to ensure that any outstanding debts are fully paid by the estate. Typically, the terms of a Will are respected and followed by a probate court, though the Will must be in compliance with state laws and regulations. If someone dies without a Will, they die “intestate,” and a probate court will follow state law for the distribution of property.
How Can My Estate Avoid Probate?
There are numerous reasons why you should consider creating an estate plan that allows you to avoid the probate process. Some of the reasons include keeping your financial affairs private and outside the prying eye of public court filings. In addition, the probate process is timely and expensive. As a result, if your estate plan is set up to avoid probate, you will typically save your loved one’s time and resources.
Regarding how to avoid probate, here are some strategies to consider:
- Transfer Property to a Living Trust
- Purchase Property with Joint Ownership that Includes a Right of Survivorship
- Establish Transfer-on-Death and Payable-on-Death Accounts
Each probate avoidance strategy will be discussed in more depth below.
Is Avoiding Probate a Good Thing?
Whether or not avoiding probate is good depends on your unique circumstances. Nevertheless, many people decide that the benefits of utilizing probate avoidance strategies when setting up their estate plan are preferred when weighed against the significant costs associated with the probate process.
Top Three Ways To Avoid Probate
Create a Living Trust – A living trust (also known as a revocable living trust) is considered to be the most effective (and popular) way to avoid the probate process. To create a revocable living trust, you execute a document creating a living trust as a separate entity from you. Property title is then transferred from you to the trust, and you would then assume the role of trustee.
You fully control the property that is in the trust while you are alive. When you pass away, the individual you appointed as your successor trustee will take the necessary steps to ensure the property in the trust is transferred to the identified trust beneficiaries. This transfer, in contrast to administering a Will, does not require any involvement or approval from a probate court.
Another important benefit of a living trust is that you can empower the successor trustee to take over management of the trust if you were to become mentally incapacitated or placed in a vegetative state.
Jointly Own Property with Right of Survivorship – Along with creating a living trust, a good strategy for probate avoidance is ensuring property is jointly owned with a survivorship right. When you own property, such as a home, jointly with the right of survivorship, it means that the title to the home will pass automatically to the other owner when you pass away.
Set Up Transfer-On-Death and Payable-On-Death Accounts – Another effective strategy for avoiding probate is setting up Transfer-On-Death (TOD) designations, and Payable-On-Death (POD) accounts for certain assets. In most states, you can establish a TOD designation so a beneficiary can receive certain property in the event of your death.
Typically, a TOD designation works for property other than funds in financial accounts. For example, you can establish a TOD designation for securities such as stocks, bonds, and other financial instruments.
In addition, TOD designations can be established for real estate you own. Though, it is worth noting that TOD designations for real estate are only recognized in the following states: Alaska, Arizona, Arkansas, Colorado, the District of Columbia, Hawaii, Illinois, Indiana, Kansas, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.
A Payable-On-Death (POD) designation can be included for many banking and similar financial accounts (including IRAs). When you have a POD account, it means you can simply designate someone as a beneficiary in the event of your death, and they will receive those funds without having to go through any bureaucratic loopholes associated with probate.
Have Questions? Codi M Dada can help you through the probate process.