It is wise to avoid probate, as it saves your money and time. In this WealthHow article, we will provide you with the details of some simple ways of avoiding this judicial process.
Probate is a judicial process, wherein a court determines the value of a deceased person’s assets, pays his creditors, and distributes the remaining assets among his heirs and beneficiaries. Simply put, it’s a process by which the property of a deceased person is retitled. It’s a well-known fact that judicial processes take time; probate is no exception. Add to this the fact that you have to pay a significant amount of money to your lawyer and executor, and the process becomes even more undesirable. Owing to these very reasons, people prefer to opt for different methods of avoiding it―instead of getting into the legal tangles associated with it.
How to Avoid Probate?
Contrary to the popular belief, it’s easy to avoid probate, especially when you have a rough idea about the legalities involved. Given below are some simple, yet effective ways that can help you avoid it and save a decent amount of money and time.
Joint Ownership of Property
In the case of property owned jointly, when one owner dies, it passes on to the other owner without going through the process of probate. One of the best examples of such concept is Joint Tenancy, wherein the said property is owned jointly by many owners. In case any owner dies, the property is passed on to the surviving owners according to the Joint Tenancy agreement. Yet another example of this concept is tenancy by the entirety. Though both these concepts work in a similar manner, the latter requires the partners to be married couples (or same-sex partners in some states). The concept of joint ownership of property works best with real estate, bank accounts, vehicle ownership, etc.
Yet another method which can help you avoid probate is conversion of your bank account to payable-on-death account. You can do this by filling out a separate form in which you will have to list the beneficiary who will be entitled to receive the entire amount when you die. As the entire amount will go directly to the beneficiary legally, he won’t have to resort to the judicial process of probate. Other than bank accounts, you can also use this method to avoid probate on retirement accounts, vehicle registration, etc.
Revocable Living Trusts
The trust property is not considered a part of the person’s estate for probate purposes, and therefore, holding your property in a trust is of significant help. You can create the trust by preparing a trust document and signing it. In this document, you will have to name a trustee who will own the entire property. The fact that it’s the trustee who owns the trust fund, and not you, exempts this amount from probate proceedings. After your death, the trustee will transfer this trust property to the beneficiaries by completing some simple formalities.
Gifting Away Your Property
Gifting your property while you are alive is by far the simplest method of avoiding probate, as there are absolutely no formalities involved. The question of probate doesn’t rise, as you are still alive. It also saves you the expenses incurred on the legal process, as the general rule is that higher the monetary value of the assets, higher the expenses incurred. The only thing that you need to take into consideration is the limit up to which gift tax is exempted. As of today, a person can give gifts worth US$13,000 per person, per year, without being subjected to the tax. The same limit is US$1,000,000 when it comes to lifetime.
While these were the most popular methods, there also exist a few other options that you can resort to. You can buy a life insurance and designate a specific beneficiary for your policy, or you can claim property with affidavits without any intervention from the court. Irrespective of which of these options you resort to, you need to do some serious thinking before you get into any sort of pact, as it may turn out to be costlier than abiding by the legal process itself.