5 Ways to Avoid Probate
5 Ways to Avoid Probate
Without proper estate planning, probate can end up being one long, expensive stress for your heirs. So as you prepare end-of-life documents such as your will, advance directive, and living will, something else you should keep in mind is doing your best to avoid probate.
Before we get into how to avoid probate, let’s talk about what probate is and why you would want to bypass dealing with probate law at all.
What Does Probate Mean?
Probate is the court-supervised process of settling a decedent’s estate and distributing his or her property to heirs.
Simply having a last will does not avoid probate; in fact, a will must go through probate. To probate a will, the document is filed with the court and a personal representative is appointed to gather the decedent’s assets and take care of any outstanding debts or taxes. The personal representative can then distribute the decedent’s assets to the heirs.
Why Avoid Probate?
Because gathering assets and paying off debts can take time and be costly, it can end up delaying distributions of your property to your loved ones. In the worst case scenario, a drawn-out probate process can last several months or even years and seriously dip into the assets meant to go to your heirs.
Moreover, if a probate attorney has to get involved, you are looking at even more expenses and delays.
Accordingly, if you can avoid probate and have your assets pass directly to your heirs without the involvement of the probate court, you want to do so.
How to Avoid Probate
Now that you know what probate is and why you probably want to avoid it, let’s move on to the most common ways available of avoiding probate.
1. Joint Ownership of Property
Jointly held property with the right of survivorship passes directly to the joint owner who is still living. Generally, there are three main ways to hold property jointly with another person:
- Joint tenancy with a right of survivorship. The owners are “joint tenants” of the property and the survivor takes full ownership upon the death of the other owner.
- Tenancy by the entirety. Similar to joint tenancy, only this type of ownership is available only to married couples (including same-sex couples in some jurisdictions).
- Community property. In states with community property laws, spouses hold property jointly with the right to survivorship.
2. Beneficiary Designations
Life insurance and retirement accounts including 401(k)s, annuities, and IRAs all have designated beneficiaries within the documents; those funds pass directly to the beneficiaries without having to go through probate.
3. Pay-on-Death and Transfer-on-Death Accounts
Some states allow you to designate a beneficiary for your bank account, which is called a “pay-on-death” or POD account. You may also be able to designate a beneficiary for your investment account through a “transfer-on-death” or TOD account.
4. Revocable Living Trust
One of the most common ways to avoid probate is to create a living trust. Through a living trust, the person writing the trust (grantor) must "fund the trust" by putting the assets he or she chooses into it. The grantor retains control over the trust’s property until her death or incapacitation.
At that point, the trust is turned over to the successor trustee, who had been chosen by the grantor and who will distribute trust property according to the grantor’s wishes. All of this happens outside the purview of the probate process.
5. Giving Away Property
If you pass ownership of an asset to someone else within your lifetime, that property can’t and won’t be part of your estate when you die. Obviously, then, it also wouldn’t be part of the probate process as your chosen heir would already have ownership of the asset.
Depending on the situation, however, you may have to pay a gift tax, that can be expensive.
As you can see, avoiding probate doesn’t have to be complicated and in many instances involves simple transfers of assets so they are not within the reach of probate law. Taking a few steps now could mean saving your estate—and your loved ones—valuable time and expenses later.
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