The Basics of Probate
Probate and the probate process is a confusing and somewhat counter-intuitive judicial process. The good thing about probate is that it enables the intent specified in your will (if you have one) or provides a process for administering your estate if you don’t have a will. However, avoiding the probate process is usually a good idea. This is because the probate process is public. Filings are generally open for review, meaning anyone can learn what assets you owned during your lifetime and how they’ll be distributed after your death. As you might imagine, this can lead to family disputes and other issues.
You can keep much (or even all) of your estate out of the probate process (and the public eye) by using the right estate planning techniques.
Additionally, the probate process is a time consuming one. Most of the steps taken are done so in accordance with state statute, meaning prescribed timelines and procedural requirements.
What is it?
Probate is a legal procedure in which a court establishes the validity of your will, determines the value of your estate, resolves creditors’ claims, provides for the payment of taxes and other debts and transfers assets to your heirs.
In certain circumstances probate may be desirable. For some families, they may might want court intervention to resolve issues and provide transparency. For estates with creditor claims, probate places strict time limits on creditor claims.
Avoiding (or minimizing) probate
There are several methods you can use to avoid (or minimize) probate. (You’ll still need a will — and probate — to deal with guardianship of minor children, disposition of personal property and certain other matters.)
Beneficiary Designations. The simplest ways to avoid probate involve designating beneficiaries or titling assets in a manner that allows them to be transferred directly to your beneficiaries outside your will. So, for example, be sure that you have appropriate, valid beneficiary designations for assets such as life insurance policies, annuities and retirement plans.
Transfer on Death. For assets such as bank and brokerage accounts, look into the availability of “pay on death” (POD) or “transfer on death” (TOD) designations, which allow these assets to avoid probate and pass directly to your designated beneficiaries. However, keep in mind that, while the POD or TOD designation is permitted in most states, not all financial institutions and firms make this option available.
Joint Tenancy. For homes or other real estate — as well as bank and brokerage accounts and other assets — some people avoid probate by holding title with a spouse or child as “joint tenants with rights of survivorship” or as “tenants by the entirety.” But this has three significant drawbacks: 1) Once you retitle property, you can’t change your mind, 2) holding title jointly gives the joint owner some control over the asset and exposes it to his or her creditors, and 3) there may be undesirable tax consequences.
A number of states now permit what is known as a transfer on death deed. This type of deed allows you to designate a beneficiary who’ll succeed to ownership of real estate after you die. Transfer on death deeds allow you to avoid probate without making an irrevocable gift or exposing the property to your beneficiary’s creditors during your lifetime.
Consider a living trust for simplicity
Bear in mind that the right strategies depends on your goals and concerns. For some estate, a living trust (also commonly called a “revocable” trust) generally is the most effective tool for avoiding probate. A living trust involves some setup costs, but it allows you to manage the disposition of all of your wealth in one document while retaining control and reserving the right to modify your plan.
To avoid probate, it’s critical to transfer title to all of your assets, now and in the future, to the trust. Assets outside the trust at your death will be subject to probate — unless you’ve otherwise titled them in such a way as to avoid it (or, in the case of life insurance, annuities and retirement plans, you’ve properly designated beneficiaries).
Probate avoidance only one goal
Keep in mind that avoiding probate is just part of estate planning. Your estate planning advisor can help you develop a strategy that minimizes probate while reducing taxes and achieving your other goals.
Estate Planning Kansas City is an estate planning attorney in Overland Park providing wills and trusts to those in Leawood, Lenexa, Olathe, Prairie Village, Roeland Park and Shawnee and now serving Parkville, Riverside and North Kansas City from our Briarcliff Office. Each situation is different and this article is intended for informational purposes only and should not be taken as legal advice. The choice of a lawyer is an important decision and should not be placed solely upon the base of this post.