The bad news: When someone passes away and their estate (all of their money and property) has to go through probate (the court-supervised process of distributing a deceased person’s money and property), it can get expensive with court costs, attorneys, accountants, appraisers, personal representatives and the like. Depending on the probate’s complexity and the state’s procedures, this can easily turn into thousands of dollars for such costs.
The good news: Many of these probate expenses can be reduced by avoiding probate. It’s really that simple.
Here are three easy ways to reduce or eliminate costs by avoiding probate:
- Name a Beneficiary. The probate process only applies to those assets that are in your name at your death. By naming a beneficiary, these assets will be transferred to the named individual(s) without any court involvement. Beneficiaries are often designated on the following assets:
- Life insurance
- Retirement plans
- Real estate (via a Beneficiary Deed)
Caution: When someone is named as a beneficiary of an asset through the use of a beneficiary designation, he or she will receive that asset outright, regardless of the beneficiary’s situation, creditors or capabilities.
- Create and Fund a Revocable Living Trust (RLT). Once the RLT has been created, you will “fund” the RLT by transferring assets out of your individual name and into the name of your trust. As the trustee of your trust, you remain in charge of all decisions until your passing, and you retain the use and enjoyment of those assets as the current beneficiary. After your passing, your named successor trustee will manage and distribute your assets – according to your wishes. A trust works best when properly created and funded by an experienced estate planning attorney.
- Own Property Jointly. Probate can also be avoided if the property you own is held jointly with a right of survivorship. Similar to a beneficiary designation, joint ownership has the effect of automatically transferring the ownership of the asset to the other joint owner(s) upon your passing. There are several ways to establish joint ownership of property, including:
- Joint tenancy with right of survivorship – ownership automatically transfers to other joint tenant(s) upon your passing
- Community property with right of survivorship (only available to married couples) – ownership automatically transfers to your surviving spouse upon your passing
State laws play an important role here. We can help you determine which form of joint ownership, if any, is a good fit for you.
Caution: Adding a joint owner to your accounts or property can subject those accounts or property to claims asserted by the other joint owner’s creditors. For example, if a parent names their adult child as a joint tenant on the parent’s bank account or real estate, and that child later has creditor issues, the child’s creditors may look at the parent’s bank account or real estate as being owned by the child – and thus potentially subject to seizure by the creditor. Moreover, this vulnerability begins the moment they are added. Another issue is when a joint tenant is added and then the original owner changes their mind and wants to remove the joint tenant. The original owner cannot remove the joint tenant unilaterally and will require the joint tenant’s consent to change ownership of the asset.
We Have the Tools to Help You
We are here to help you determine and implement the strategy that works best for your unique situation. Call us today at 480-699-7992 to discuss whether it makes sense to avoid probate in your situation and the best way to accomplish your goals.