Estate planning is essential for every American. It protects your hard work, your loved ones, and your assets. But are these things better protected if you try to avoid probate? What does this term really mean? How might you avoid it? And should you even bother? Here are some helpful answers to these questions so you can make the best decisions.
What Is Probate?
The first step in deciding how to handle probate in your estate is to understand what it actually is. Probate is the legal process in each state which confirms wills and oversees their fulfillment. It’s done by the probate court.
If a will is present, the probate court will rule on whether it’s legally valid. If it is, the court will authorize an executor or personal representative, who then follows state requirements for accounting for the estate, paying its bills, and distributing it to heirs. The court also handles litigation related to the estate or will.
If no will is found, probate court assigns a personal representative to manage the estate. Each state has inheritance rules which govern how the estate of someone who died intestate (without a will) is distributed. The rest of the probate process is similar to that of an estate with a will.
Why Might You Try to Avoid Probate?
There are a few very good reasons that a person might want to transfer assets outside this process. One of the most important is speed. Probate can take a minimum of several months for a simple estate. However, it can take much longer if the estate is complex, if matters must be decided by judges, or if heirs are difficult to locate. If you can pass assets to heirs without doing all this, they get their inheritance quickly.
Probate will also take some money from the estate. There are court fees and legal fees, which will add up if the probate process drags on. In addition, the longer the estate is in existence, the more expenses it will naturally have.
Finally, there is the issue of privacy. Probate is a matter of public record. The specifics of the will and any court hearings about it (or in the absence of one) must be kept on the record. However, assets transferred using other means remain a private matter between you and those directly involved.
How Can You Avoid Probate?
So how does a person actually avoid probate? There are a number of methods, and you can use one or many to accomplish your goals. One of the easiest is the beneficiary designation on bank and brokerage accounts. You may name a beneficiary who is to receive ownership of the assets directly, usually by providing a death certificate. Most Americans can take advantage of this option.
Another simple method is to hold joint tenancy of an asset, such as a piece of real estate or a bank account. New York, like many other states, allows the asset to pass directly to full ownership by the surviving joint tenant.
Living trusts are less common but can be more encompassing. A trust is just a legal entity into which you transfer ownership of one or more assets. You determine the rules of the trust and name a trustee who will take over after you pass away. Living trusts can be revocable (you can change the terms or terminate the trust yourself) or irrevocable (not even you can change it once established).
You may also use things like life insurance policies, annuities, gifts during your lifetime, or business entities to pass on specific assets directly to others.
Can You Really Avoid Probate Entirely?
The idea of avoiding probate is a bit of a misnomer. Many people cannot—or should not—avoid letting anything transfer through probate. It’s often a matter of practicality. It’s nearly impossible to set up your estate so that absolutely everything you own is transferred through another means. Smaller and miscellaneous assets may need to be distributed through a pour-over will in any case.
There are other reasons to leave some assets to go through traditional probate. You may want to minimize effort and expense by limiting what assets are in trusts. Or perhaps transparency will reduce conflict among your heirs after you die. And options like joint tenancy may give others too much access to your assets before they inherit.
Where Can You Learn More?
Want to know if you should avoid probate for certain assets and, if so, which method is right for your estate? Find out by meeting with Siben & Siben LLP. We’ve assisted Long Island area residents with all their legal needs for nearly 90 years. We can help you find the right tools to achieve your estate planning goals, no matter what they are. Call today to make an appointment.