Estate Planning Raleigh Chapel Hill Durham Cary

Alternatives for Avoiding Probate

In Asset Allocation, Estate Planning, General Financial Planning by Chip Hymiller

Many people would prefer that their estates avoid the probate process.  While the probate process is not overly costly in most states, it is generally considered a hassle to those who have experienced it.  The following is a discussion on several alternatives for avoiding probate.
We have received a number of questions recently regarding the estate settlement process—and in particular the probate process.

What is probate? Probate is the legal process of administering a person’s estate. The probate court usually takes an inventory of a person’s assets and liabilities and oversees the distribution of assets to a person’s heirs.

So, why should you avoid probate?  First of all, probate can be a very time consuming process—as the court has to validate your will and supervise the distribution of your estate.   The process can span over several months to a year (sometimes longer).  Secondly, court costs and in some cases, attorney’s fees can become costly.  In addition, the probate process is a matter of public record, which can present privacy concerns for some people.

Like most estate and financial planning strategies, avoiding probate is not always recommended.  In addition, there are tax and other implications that should be considered.  However, for those who prefer avoiding the probate process, there are several simple solutions that will help accomplish this objective.  Here are five of the most common probate avoidance techniques:

Making Beneficiary Designations: Simply naming beneficiaries on life insurance policies and retirement accounts (401k plans, IRAs, and Roth IRAs) avoids probate.  In addition to naming a primary beneficiary, we would suggest that you also designate a contingent beneficiary (in the event the primary beneficiary predeceases you).  As a note, It is never advisable to name your estate as a beneficiary of retirement accounts and qualified plans.

Owning Assets Jointly:  Some types of joint ownership provide an easy way to avoid probate.   Accounts whereby the registration is Joint Tenancy with Right of Survivorship or Tenancy by the Entirety are transferred directly to the other owner of the account at the time of one owner’s death.  As such, the assets held in these accounts pass directly to the other owner and avoids probate.

Gifting to Your Heirs: This may be one of the simplest ways to avoid probate; give away assets while you are alive.  If you do not own the asset when you pass away, then it is not subject to probate.  Currently, everyone is allowed to gift up to $13,000 per year to anyone and avoid gift tax filings on the transfer of the property.

Establishing and Funding a Revocable Living Trust: A revocable living trust is a legal document that gives the authority to a trustee to distribute assets according to your wishes.  When using this approach to avoid probate, it is important to re-title assets in the name of the trust—a critical step that many people neglect or forget.

Utilizing Transfer On Death (TOD) Accounts:  In most states, it is possible to convert your bank accounts and other personal investment (non-retirement) accounts to Transfer on Death Accounts.  By simply completing a form to name beneficiaries to your account, at your death the account passes directly to the beneficiary and avoids probate completely.

Sometimes probate cannot or should not be avoided completely.  However, taking a few simple steps can reduce the  burden of probate on your family.  We are happy to discuss your estate plan with you and suggest solutions that may be appropriate to consider.  In addition, we have conducted due-diligence to find attorneys that will be most suitable given your personal circumstances.  Please contact our office to discuss your personal situation.