The bad news: When a deceased person’s estate (all their money and property) has to go through probate (the court-supervised process of distributing a late person’s money and property), it can be subject to a variety of costs stemming from attorneys, executors, appraisers, accountants, courts, and state law. Depending on the probate’s complexity, fees can run into tens of thousands of dollars.
The good news is that you can reduce many of these probate costs by avoiding probates. It is that simple.
Here are three simple ways to reduce or eliminate costs by avoiding probate:
- Name a Beneficiary. The probate process only applies to those accounts or other property in your name at your death. These accounts and other property will be transferred to the designated individual without any court involvement by naming a beneficiary. Depending on your state, common beneficiary designation assets include:
- Life insurance
- Annuities
- Retirement plans
- Real estate
Caution: When someone is named as a beneficiary of an account or piece of property through the use of a beneficiary designation, they will receive that account or property outright, which could subject the account or property to claims asserted by the beneficiary’s creditors.
- Create and Fund a Revocable Living Trust (RLT). Once the RLT has been created and you have adequately transferred the ownership of your accounts and property to the RLT by re-titling them into the name of the trust, you remain in charge of all legal decisions until your death as the trustee. You also retain the enjoyment of those accounts and property as the current beneficiary. After your death, your named successor trustee will manage and distribute your assets – according to your wishes. A trust works well if 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 upon your death. There are several ways that you can establish joint ownership of property, such as:
- Joint tenancy with right of survivorship – ownership transfers to other tenants upon your death.
- Tenancy by its entirety – a form of joint tenancy with a right of survivorship, but only for married couples in some states.
- Community property – property obtained during a marriage in some states.
State laws play a significant role here. An attorney can help you determine which form of joint ownership, if any, is a good fit for you.
Caution: Just as with a beneficiary designation, adding a joint owner to your accounts or property can subject the accounts or property to claims asserted by the new joint owner’s creditors. Moreover, this vulnerability begins the moment they are added. This means that your accounts or property could be seized by your new joint owner’s creditors even while you are still alive.
Owei Z. Belleh – info@bellehlaw.com
