Most people know that creating a will is a necessary step in ensuring your possessions are passed on to loved ones after you die. However, what most people don’t realize is that, even with a will, the distribution of your assets can take a long time and cost your family money.
The reason for this is probate—a legal process that’s necessary for passing on your estate. When working with an estate planner, one of the most important things you should discuss is how to avoid probate and make your estate’s transition faster, easier and cheaper.
What is probate?
Probate is the legal process of “proving” your will and distributing your assets in court. Probate is usually initiated by the executor of your estate or by an attorney after your passing. During this process, a probate court will verify that your will is valid, evaluate whether you owe on debts and estate taxes and give your executor permission to distribute assets according to your wishes.
Unfortunately, while probate sounds simple, this is not always the case, especially for larger, more complicated estates.
Probate is public, meaning family and friends who you may have excluded from your will might find out about the process and come to object, complicating the process. Outsiders will also be able to get a peek inside your estate’s distribution. For many, this is a privacy violation they’d like to minimize.
Additionally, probate isn’t free. This means that your loved ones will need to pay court fees to obtain your distributed assets—a fact that hurts even more after the death of a loved one.
Probate is also not fast. Probate court can last for several months or even years, especially with complicated estates or estates that failed to produce a will. This means your heirs might be waiting to receive their inheritance for a long time.
Top ways to avoid probate
Because probate can result in a headache-inducing situation for your loved ones after your passing, it’s important to take action while you can and plan your estate in ways that minimize probate as much as possible.
There are a few easy ways to make probate faster, easier or non-existent.
Establish trusts: One of the best ways you can pass along your assets without making your beneficiaries endure probate court is by creating trusts (revocable or irrevocable) that hold your assets. When you place assets in trusts and name beneficiaries, those assets are passed along to your heirs immediately by the trustee outside of probate and the public record.
Name correct beneficiaries: For assets like insurance policies and bank accounts, make sure you have the correct beneficiary named before your passing. These types of assets do not go through probate and can be passed along to the beneficiary right away, but you want to ensure each asset is going to the correct person and that there is no ambiguity.
Give inheritance early: Another way to minimize probate is to give your assets to heirs before you die, rather than leave them in your estate and will to be passed along later. You are allowed to give gifts up to a certain amount each year before having to pay estate taxes, but either way, these gifted assets will not be subject to probate if given sooner rather than later.
Working with a holistic financial planner like Affluencer will help you formulate your estate plan to avoid probate and give you the information you need to understand which types of trusts make the most sense for you. A financial planner can guide you on how to set up your trusts to achieve maximum benefits and to avoid making common mistakes.
Most Americans make mistakes when it comes to their estate plans because they get conflicting information online. This is where a financial planner with an estate planning background can help, so you can avoid common pitfalls and save even more money for your heirs.