The Ultimate Guide to Avoid Probate and Protect Your Assets
Family Law

The Ultimate Guide to Avoid Probate and Protect Your Assets

Probate court proceedings can be lengthy and expensive. They also involve a lot of private, sensitive financial information that could become public. Avoiding probate may be possible for some people with proper planning. However, for most, it’s a necessity. Here are the five ways to avoid probate and protect your assets.


Establish a Living Trust

While a will is sufficient for many Americans, a living trust may be better for people with sizable estates or complex family dynamics. Generally, a living trust avoids probate and provides more control over assets. The most common living trusts are revocable and irrevocable, but there are various other options, including special purpose trusts. Probate is a process during which a court validates your will and oversees the distribution of your estate to beneficiaries. Your assets must be inventoried and appraised during probate, and any debts paid. The process can take months or more and costs money, executor’s fees and court costs. Establishing a living trust is one of the most successful strategies on how to avoid probate. A living trust avoids probate, which can save time and expense. However, it is important to ensure that beneficiary designations on your bank accounts and life insurance policies are up-to-date to pass the assets to the appropriate individuals. You can use online tools to update your beneficiary designations, and most financial services companies have forms for their customers to fill out to make the changes.

Name a Beneficiary

By naming beneficiaries, many assets, including life insurance policies, retirement accounts, and bank accounts, can be handed on to loved ones without going through probate. Beneficiaries can be individuals, a trust or a charity. You can specify what portion of the asset each beneficiary will receive, and you may also include conditions such as requiring a beneficiary to reach a certain age before receiving their inheritance. If you don’t name a beneficiary, the financial company holding the account will decide where to send the funds upon death. This can be costly and time-consuming and may lead to fighting among relatives. A benefit of naming beneficiaries is that assets held “jointly” or as TOD (transfer on death) or POD (payable on death) are not part of your estate, so they don’t have to go through probate. However, you should consult a knowledgeable tax advisor before selecting beneficiaries on accounts or other assets. Also, if you’re leaving money to someone with special needs, an inheritance could disqualify them from receiving government benefits.

Change the Ownership of Your Property

You can avoid probate by changing the ownership of your property in several ways. For instance, you can change the title of your home to joint tenants with the right of survivorship (JTWROS), which will pass to a surviving spouse upon the death of either party. This technique is especially effective for married couples. However, consulting with a financial planner is important as this strategy is more complex than it may seem and could trigger gift tax consequences. Another way to avoid probate is to change the beneficiary’s name on a bank account or security, such as a mutual fund, insurance policies, or real estate deeds. You can also make a will that will designate heirs and transfer property after death, but this requires a thorough knowledge of state laws. Some states have small estate exemptions where assets valued below a certain amount do not require probate. Contact your local county court or an estate planning attorney to find out what options are available for your situation. Avoiding probate will save your family the stress and expense of settling your estate after you’re gone.

Designate a Trustee

If a trustee cannot serve or dies before the trust terminates, the probate judge can nominate another person to act as trustee. The successor trustee may have to post a bond. This type of bond guarantees that the trustee will carry out their duties as fiduciary. These bonds are often referred to as estate or executor bonds. Choosing the right person to act as a trustee requires careful and objective vetting. Serving as trustee is a major responsibility requiring tax, investment, accounting and legal expertise. It also involves making difficult decisions about the distribution of trust assets. It’s a good idea to include a provision in your trust document stating that you are willing to serve as trustee for a fee, which you will negotiate with the person you choose. A professional trustee will usually be paid (a legally capped amount) out of the trust assets. If you decide to name a family member as a trustee, they should know that this requirement could cause friction in the family.

Post a Bond

It is possible to avoid probate, but it requires some planning ahead of time. It often involves examining how property ownership is set up and tax considerations. It also requires knowledge of probate laws in your state and how to best take advantage of them. The executor of an estate must guarantee that all debts are paid, and any remaining property is allocated to beneficiaries during the probate procedure. This typically entails the executor posting a bond to ensure that they will obey state law and the terms of the will. This safeguards family members who might sue the executor for failing to do so. Avoiding probate can save your heirs a significant amount of time and money. It can also keep private financial information from becoming public.  While avoiding probate is not as simple as simply changing the ownership of your assets, it can be done with the help of a knowledgeable estate planner and experienced probate attorney. 

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