How To Avoid Probate

Four ways to minimize your estate

Person reviewing paperwork with lawyer
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After your death, somebody needs to manage your affairs. For example, you may owe money to lenders, own property, or have assets that need to be distributed to heirs. In many cases, the process of handling those tasks happens in probate.

Probate is a court-supervised process of verifying your will and managing your assets and liabilities. This process begins by proving your will, and an executor or personal representative will eventually pay creditors and gift any remaining assets in your estate to your heirs.

While many people navigate the probate process without difficulty, probate does take some time, and it can be expensive. With careful planning, however, it may be possible to skip the challenges often associated with probate.

Key Takeaways

  • The probate process, which is the administration of your estate after your death, can often be expensive, time-consuming, and stressful.
  • It is possible to avoid probate or streamline the process with careful estate planning.
  • Trusts, beneficiary designations, and giving strategies can reduce the size of your estate.
  • It doesn’t always make sense to avoid probate, as it can be useful in settling outstanding claims or resolving complicated matters.

Why You Should Avoid Probate

Avoiding probate is a common goal, but the process isn’t necessarily cumbersome. Still, going through probate has potential drawbacks, and it’s important to know what you’re facing—and decide if you’d rather avoid probate.

Cost

The costs involved in probate can reduce the amount of money left for heirs. The probate process can include court fees, attorney fees, appraisal and valuation fees, and other costs. The personal representative might receive compensation for the time and effort required to complete the process, and your state may have additional fees. Ultimately, the cost of probate could amount to 2% to 5% of an estate’s value. That said, in some cases, the cost is lower, or can skyrocket with complicated situations.

Delays

Probate takes time, potentially adding stress or leaving heirs in financial hardship. In some cases, it can take months or years to complete the process. But other methods of transferring assets (like naming a beneficiary) can help others access funds more quickly.

Claims and Disputes

When you avoid probate, you reduce the chances of creditors or disgruntled family members making claims to the decedent’s assets. Because the probate process is slow and part of the public record, others may have an opportunity to interfere. But probate-avoidance strategies can help reduce problems.

Although you can potentially save time and money by avoiding probate, it’s not always the right move. In some cases, going through the probate process helps ensure that you satisfy outstanding claims and address complicated matters. Speak with an estate planning attorney to learn if it makes sense to go through probate or not.

4 Ways To Avoid Probate

It’s not terribly difficult to avoid probate, and you have several options for doing so. Probate-avoidance strategies typically focus on minimizing the size of your estate. If the value of your assets is below specific levels determined by your state, you might be allowed to use a simplified probate process.

The right approach will depend on the types of accounts you own, your relationships, and other factors, and it may make sense to use a combination of the following strategies.

Create a Revocable Living Trust

Assets held in trusts typically are not subject to probate. Instead, the trust document dictates what happens with assets after your death. For instance, the trust might say that your beneficiaries receive a lump sum, or the trust might disperse funds when beneficiaries meet certain milestones (such as age 25 or graduation from college).

If you use a revocable living trust, you can keep control of your assets during life. That way, you can spend money as needed or update the trust if your wishes change.

If you establish a trust, it’s critical to follow through and fund the trust by titling assets in the trust’s name. If you skip that step, the trust might not accomplish any of your goals.

Name Beneficiaries for Your Accounts

You can arrange for some accounts to pass directly to a beneficiary after death. Instead of having the assets in your estate, the funds skip probate, minimizing the size of your probate estate. You can name beneficiaries for retirement accounts and life insurance policies, and doing so can potentially offer tax benefits for your heirs. Check with your CPA and other financial professionals to design a strategy that manages taxes and meets your estate planning goals.

Taxable accounts and bank accounts can have beneficiaries in some cases. With a Transfer on Death (TOD) or Payable on Death (POD) registration, your named beneficiary can take over an account relatively easily.

It’s critical to periodically review and update your beneficiaries. The instructions in your will do not apply to property that passes to others through a beneficiary designation. Even if your will says something different than your beneficiary instructions, the beneficiary designation will take precedence because those assets won’t be in your estate.

Own Property Jointly

When you own property as a joint tenant with rights of survivorship, those assets automatically go to the joint owner (or multiple owners) after your death. As a result, they will not be part of your probate estate, and your will does not govern how those assets are distributed. It’s common for couples to own property jointly, making it easy to manage household assets and ease the burden on survivors after death.

However, there are several types of joint property, and not all of them work like joint tenants with rights of survivorship. For instance, property owned as tenants in common might go to your estate, and things can get complicated in community-property states.

In a community-property state, any assets acquired by either spouse during marriage are considered equally owned by both spouses.

Give Away Property Before You Die

Your estate consists of property you own at death. If you give assets to others during life, you can reduce your probate estate, and it may be satisfying to watch others enjoy (or otherwise use) assets during your life. For example, you might give cash to children or donate assets to charity.

Remember that you don’t know how long you’ll live or how much money you’ll need for health care and other expenses. So make sure you can live comfortably before irrevocably giving up control of assets.

The Bottom Line

After a loved one dies, the probate process can add a time-consuming and stressful task to everything else that survivors have to deal with. Plus, probate costs money—sometimes a significant amount. With some planning, it may be possible to avoid or simplify probate.

Simple tasks such as naming beneficiaries go a long way, and more complicated tactics can also help. If you’re concerned about the impact of probate on your family members or your assets, speak with an estate planning attorney licensed in your state. That’s the best way to get a realistic estimate of the costs, and you might get some excellent ideas on how to manage your estate.

Frequently Asked Questions (FAQs)

How long does probate take?

The probate process can move quickly or slowly, and it depends on the complexity of an estate and state laws. In some states, the estate must remain open for several months—at a minimum. When things get complicated or contentious, the process can take years.

How much does an estate have to be worth to go to probate?

Each state sets limits on when an estate qualifies for a simplified or expedited probate. Check with your state or a local attorney to find out whether or not you are eligible. Naming beneficiaries and other strategies can help minimize the size of your estate.

Does a will always have to be probated?

It’s possible to settle an estate without going through the probate process. But the degree to which courts are involved and requirements for proving the will depend on state laws, property ownership, and other factors. Check with an attorney in your state or local officials to confirm whether or not probate is necessary.

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Article Sources

  1. Fidelity. “Settling the Estate: Probate.”

  2. Superior Court of California - County of Santa Clara County. “About Probate - How To Probate a Decedent’s Estate.”

  3. Wessels Law Firm. “When Is Going Through Probate a Good Thing?

  4. Fidelity. “Is a Trust Right for You?

  5. American Bar Association. “Introduction to Wills.”

  6. Nationwide. “Leave Money to Your Heirs.”

  7. Wells Fargo. “Transfer on Death Designations: Advantages and Disadvantages.”

  8. Charles Schwab. “Types of Brokerage Accounts.”