5 Simple Strategies to Avoid Probate and Protect Your Assets

There are several strategies for avoiding probate and sparing your beneficiaries the expense, stress, and delay of this process. These include living trusts, joint ownership, and payable-on-death accounts.

Gifts can also be used to avoid probate, but this strategy can carry certain consequences for gift tax. Often, it is best to consult with a qualified estate planning attorney to implement this type of plan.

Create a Living Trust

A process known as “funding” or transferring your assets into the trust is one approach on how to avoid probate. By creating a revocable living trust, you can retain control of your property while living. Plus, it can help prevent disputes among your loved ones over your estate in the event of your death or incapacity.

Probate court is the process through which a deceased person’s debts are paid and their assets distributed to heirs. It can take months to a year or more, costing the estate many fees and expenses. The probate process can also reveal personal details about a deceased individual that their loved ones may prefer to keep private, such as unpaid balances, sums owed to specific individuals and other information.

If you want your assets to avoid probate, you need to transfer them into the trust, a process known as “funding.” Our estate planning attorneys can help you set up a plan to ensure all your assets are protected, and your affairs remain private.

Joint Ownership

Many married couples hold title to their real estate and bank accounts in joint tenancy with rights of survivorship (JTWROS). This is often considered a simple way to avoid probate for a family home, vehicles, bank accounts and investment properties.

While avoiding probate is an attractive proposition, this type of asset transfer often has hidden costs. The most obvious is that a joint owner’s interest can be subject to liens and judgments against one or both owners. This is especially common if a joint owner has significant debt.

If an owner becomes incapacitated and unable to manage their property, a court proceeding will be necessary to appoint a legal representative to make decisions and manage their assets. This process is often costly and challenging. To safeguard an inheritance, trust is often preferable over joint ownership. An experienced estate planning attorney can assist in determining whether a belief or common ownership is the best solution.

Make Gifts

The best way to minimize estate tax problems is to avoid probate, which can result in hefty attorney fees and taxes. The best way to avoid the cost of probate is to set up mechanisms now that will help spare your beneficiaries the time, expense, and stress that come with the process.

Putting assets into a living trust is one of the most common strategies to avoid probate. This allows the trustee to manage assets inside the trust without the involvement of the courts. But you can also take other proactive steps to simplify and speed up the probate process.

For example, ensure you have named beneficiaries in your bank and retirement accounts. Having beneficiaries on these types of assets and life insurance policies will void them from having to go through the probate process upon your death. This can save your estate thousands of dollars in legal fees. In addition, it can also avoid the need for a final accounting, which is one of the most highly-contested parts of the probate process.

Beneficiary Designations

Beneficiary designations can help avoid probate by transferring ownership of certain assets without court involvement. They are commonly used for retirement accounts (like IRAs and 401(k)s), life insurance policies, and bank accounts.

They are also a common method of avoiding probate for real estate held in a joint tenancy with someone else. However, these methods can have drawbacks if not properly set up and maintained.

Reviewing your beneficiary designations regularly and updating them for major life events like marriage, divorce, births, and deaths is important. Please do so to avoid transferring your assets to a person or entity you did not intend to.

Make it a habit to review your financial accounts and policies for ten minutes once a year, checking their primary, contingent and residuary beneficiaries. This simple task will protect your loved ones from unintended consequences and ensure your legacy is what you want it to be. Also, remember to check with charitable organizations you support to determine their specific requirements or processes for accepting designated funds.

Transfer-On-Death Accounts

While a living trust is often the best way to avoid probate, other methods exist. One process involves naming beneficiaries on investment accounts, such as bank or brokerage accounts and life insurance policies. These assets will automatically transfer to the designated beneficiary upon your death without involving the estate or going through probate. These accounts are sometimes called payable on death (POD) or transfer on death (TOD) accounts.

One way to transfer ownership of the real property after your death is through a TOD deed, which works similarly to joint tenancy with rights of survivorship. However, this method does not require probate. Nonetheless, this option has some downsides, such as the possibility of a disgruntled stepson challenging your Will or making a claim against the estate. Additionally, it may take several months to access the funds from a POD account. To avoid these issues, it’s advisable to establish a revocable living trust and seek guidance from a reputable estate planning attorney. A professional can provide valuable insights into the benefits of each type of asset ownership.