When someone dies, there are often many loose ends to tie up. Creditors need to be paid, existing real estate must be dealt with, and the estate needs to be organized. Probate is the legal process of sorting out a person’s estate upon death under court supervision. And while probate will certainly get the job done, there are usually better ways to do it.
Why Avoid Probate?
One of the main reasons many people want to steer clear of probate court is because it can be a long and drawn-out procedure. In fact, it is not unheard of for probate matters to take up to 12 months. For those involved in the process, this can exhausting. It can also be emotionally draining, as it usually relates to the death and property of a loved one. On the other hand, having assets in limbo doesn’t make economic sense.
Another major rationale behind wanting to avoid probate is that it can be quite costly. Legal fees can take their toll on the estate. All in all, it’s not uncommon for such costs to be as high as 5-7% of the total estate. Steering clear of probate means that this money can be put to better use, such as paying estate bills or getting passed on to beneficiaries.
Common Ways to Avoid Probate
There are a number of ways to avoid probate:
- Trusts. A trust is like a box that holds your property for you. And although you title the property in the name of the trust, you still control the assets. Anything that is in this trust when you die will not be considered in the probate process because the property does not change hands. Instead the trust changes Trustees.
- Gifting. This is an easy way to either avoid or decrease the costs associated with probate. When a person gives their property to someone else, they no longer own it and upon death, it is not viewed as part of the estate.
- Joint Ownership. This is another simple method of avoiding probate. Any part of the property that is jointly owned with someone else will automatically pass to them upon the owner’s death, thereby excluding the property from probate.
- POD Accounts. This refers to pay-on-death accounts and is exactly as the name suggests. Bank accounts are switched to POD accounts and upon death; the money in the account is paid to a beneficiary.
Of course, every estate is different and you’ll want to make sure you don’t accidentally exclude beneficiaries from inheriting or pass on significant debts in the process. To determine your best course of action, seek legal advice from a qualified estate planning attorney.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.