One of the common reasons people put together an estate plan is to avoid probate. Commercials for estate planning attorneys often scare people about the costs and hassle of going through probate.
But what exactly is probate? Is it really that bad? If so, are there ways you can avoid it?
What is probate?
Probate is the legal process of settling a deceased person’s estate. It involves several legal steps overseen by a court.
The primary goals of probate are to:
- Validate the deceased person’s will.
- Appoint an executor to act on behalf of the deceased person.
Even if a person has a will, it still must be validated by the court and proven to be authentic. Without probate, someone’s final wishes are much more likely to be tainted by fraud and deception.
Probate is also the process of settling an estate of someone who has died without a will. This is called dying “intestate” and is subject to the intestate laws of their specific state.
Why do people try to avoid probate?
Most people want to avoid being a burden to their loved ones after they are gone. By subjecting your estate to probate, you are adding additional time, cost, and frustration when they are already dealing with your loss.
How long does probate take?
The size and complexity of your estate affect how long probate can take. While some estates can be wrapped up in a few months, others can take over a year.
For small estates, some states have a simplified process. For larger estates it can take longer to take an inventory of the assets and allow creditors to file claims. Furthermore, if anyone comes forward to try and contest the will, this will add more time and cost to the probate process.
How much does probate cost?
Much like the time it takes, the costs vary depending on the size and complexity of the estate as well as the length of time it takes to complete probate.
Costs include court filing fees, executor fees, attorney fees, and fees to use an accountant (if needed).
Probate is part of the public record.
Besides the tangible costs and time involved, probate is also part of the public record. Most people would rather their personal affairs remain private.
How to avoid probate
Fortunately, there are ways to try and avoid probate.
Establish a Living Trust
A common estate planning solution is to set up a Living Trust. By establishing and funding a trust, you set up an arrangement where your assets can avoid probate when you pass away.
Because your trust now owns your assets, probate is not required when you pass away. The trust does not die with you—it still is functioning as the owner of the assets. What you’ve done is named a successor trustee to step in and distribute the assets to the beneficiaries.
Be careful—just because you’ve established a trust doesn’t mean you will avoid probate. You need to make sure you place your assets into your trust, a process called funding.
Utilize beneficiary designations
Certain accounts allow you to name a beneficiary (someone to receive the asset after you die). If you’ve opted to establish a will and not a trust, be sure to use beneficiary designations where available.
Retirement accounts like IRA’s and 401(k)’s and insurance contracts like life insurance and annuities allow you name one or more beneficiaries. Bank accounts and brokerage accounts offer “payable-on-death” or “transfer-on-death” designations that accomplish the same thing.
You can even file a beneficiary deed to transfer your house upon your death.
By keeping your beneficiary designations up to date, you can ensure that these assets bypass probate.
An estate plan will help your loved ones
Is probate a big bad scary thing? Not necessarily. But it does add unnecessary time, costs, and headaches for your beneficiaries. Unfortunately for some, it can be a real nightmare. Because of this, most people are looking for ways to make life easier for their loved ones after they are gone.
If you need an estate plan, schedule an appointment with one of our advisors. We can provide the education and a simplified process for getting your estate plan in place.
