Understanding how to avoid probate can eliminate a multitude of problems often associated with settling decedents estates. Most people are unfamiliar with how probate works, or that strategies exist to keep inheritance property out of probate court.
Becoming educated about how to avoid probate isn’t difficult. An abundance of information is available online or can be obtained by consulting with a professional estate planner or probate attorney. Many lending institutions offer estate planning services at reduced costs to their customers.
It is important to understand that probate is required in all 50 states. The only way to completely avoid probate is to transfer assets into a trust. Trusts are normally reserved for estates valued over $100,000. However, those with smaller estates can engage in estate planning strategies to keep certain assets from undergoing the probate process.
The first step of estate planning probate involves executing a last will and testament. The Will is used to designate an estate administrator, establish guardianship for minor children, and bequeath inheritance property to heirs and beneficiaries.
Executing a valid Will is one of the best gifts you can leave your loved ones. When people die without having a Will a multitude of problems can occur that could potentially bankrupt the estate. The probate process will require additional time when no Will exists. With intestate estates, a probate personal representative must be confirmed through the court. Distribution of inheritance property must abide by state probate laws.
Testate estates (those with a Will) are easier to administer because decedents’ leave directives as to their final wishes. Inheritance can be distributed to whomever they desire. Although there is a potential for heirs to contest the Will, probate lawyers can advise of strategies to minimize family strife.
Funds held in checking and savings accounts can avoid probate by assigning payable-on-death beneficiaries. Account holders fill out a simple form to designate beneficiaries and the percentage of funds they will receive upon death. Beneficiaries cannot access accounts until proper documentation is provided to the bank.
Retirement accounts and financial portfolios can avoid probate by assigning transfer-on-death beneficiaries. Upon death, beneficiaries can elect to transfer account holdings into a new account or obtain lump sum cash. When accounts are transferred, beneficiaries might be able to avoid inheritance taxes. Those who elect lump sum payment will be responsible for filing an inheritance gift tax return.
Titled property such as motor vehicles and real estate can be kept out of probate by establishing joint ownership. Real estate can be transferred by establishing Joint Tenancy with Rights of Survivorship. Some states prohibit rights of survivorship for motor vehicles, so individuals need to determine what process is allowed in their state of residence. Most states allow joint titles which allow beneficiaries to transfer the title into their own name upon the decedent’s death. Beneficiaries must provide a copy of the decedent’s last will and death certificate in order to transfer automobile titles.
Individuals can gift inheritance property while they are still alive. The IRS allows gifts up to $12,000 per individual or $20,000 per married couple per year. When gifting limits exceed maximum levels, beneficiaries must file a federal gift tax return and pay inheritance tax.