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Does Your Estate Warrant An Alternative to Probate?

Melissa Cox, CRPC®

08/04/2022

Probate has gotten a bad reputation, especially in recent years. But much of that is undeserved. If you bypass probate, your estate will go to your beneficiaries without a court proceeding, which could save some time and expense. But there is usually little reason for most people to avoid probate today. States have been revising their probate laws to make them more consumer friendly, particularly for small estates.

For most modestly sized estates, the probate process now costs little. In fact, there are some good reasons to distribute your property by will and probate. Decisions are binding and have legal finality once your will is probated, and as such, the claims of creditors who fail to file against your estate within a specific amount of time, usually six months after receiving notice, will not be honored.

There can be drawbacks to probate, including the time it can take. The process averages six to nine months to complete but may take up to two years or more for some complex estates, tying up the assets your family may want immediate access to. Also, for a larger estate, the cost could run as high as 5 percent of the estate’s value.

If you believe the size and complexity of your estate warrant exploring alternatives to probate, you might want to consider one or more of the following:

Transfer your assets to a revocable living trust.
A trust is like a basket that holds your assets. A revocable living trust, also known as an inter vivos trust, is flexible enough to include almost any asset you own. While you are living, you can act as the trustee and add or remove property as you see fit. You can also terminate or amend the trust at any time. When you die, your successor trustee distributes the trust assets to the trust beneficiaries according to the trust agreement. But trusts require a substantial amount of paperwork, are costly to create and maintain, and usually require a lawyer to draw up the trust documents. Also, a revocable living trust does not shield your estate from your creditors, creditors of your estate, or estate taxes.

Own property as joint tenancy with rights of survivorship.
Assets owned as joint tenancy with rights of survivorship pass automatically to the surviving joint owner(s) at your death. To establish joint ownership, you may need to record new real estate deeds, titles for your car or boat, stock and bond certificates, statements of account for mutual funds, registration cards for your bank accounts, and other assets. The process costs little and usually does not require a lawyer, but there are drawbacks, including that the joint owner has immediate access to your property, and your joint owner’s creditors can reach the jointly held property.

Designate beneficiaries.
Assets pass outside of probate if you establish payable-on-death provisions for your savings accounts and CDs. Ask your agent to set up transfer-on-death provisions for brokerage accounts containing stocks, bonds, or mutual funds. Your retirement accounts, such as profit-sharing plans, 401(k)s, and IRAs can also pass outside of probate to designated beneficiaries. Finally, life insurance death proceeds will avoid probate provided you name a beneficiary other than your estate.

Make lifetime gifts.
Another way to avoid probate is to give your property to your beneficiaries while you are living. Carefully planned gifting can also free those assets from gift and estate taxes. The following are usually nontaxable gifts:

  • Gifts to your spouse
  • Gifts to qualified charities
  • Gifts totaling $16,000 in 2022, or less per person, per year ($32,000 in 2022, if you and your spouse each gift)
  • Tuition payments on behalf of an individual directly to an educational institution
  • Medical care expenses paid directly to the provider on behalf of an individual

More ways to bypass or minimize probate
If your estate is small enough to meet state guidelines, your beneficiaries can claim your assets by presenting a notarized affidavit. About half of U.S. states have limits of $10,000 to $20,000 of the qualified estate value; others allow as much as $100,000. You can generally deduct estate expenses from your qualified estate value, such as taxes, debts, loans, or family allowance payments, plus the value of any other assets that pass outside probate, for example, a home jointly owned with a spouse. Real estate is usually disqualified from claims by affidavit. As such, your estate may qualify even if it is fairly large. Expect the process to take 30 to 45 days.

Your executor might also be able to file for summary, or simplified, probate. This streamlined process generally involves only a paper filing, which doesn’t require an attorney. States vary widely regarding the allowable size of an estate for simplified probate.

There are a number of financial issues associated with passing along your estate. A qualified financial advisor can help guide you through what can be complicated decisions. For more information or to schedule a meeting, call us at 330-758-0428, or email me at MCox@hbkswealth.com.

IMPORTANT DISCLOSURES

The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.

Any investment involves some degree of risk, and different types of investments involve varying degrees of risk, including loss of principal. It should not be assumed that future performance of any specific investment, strategy or allocation (including those recommended by HBKS® Wealth Advisors) will be profitable or equal the corresponding indicated or intended results or performance level(s). Past performance of any security, indices, strategy or allocation may not be indicative of future results.

The historical and current information as to rules, laws, guidelines or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified, but was obtained from sources believed to be reliable. HBKS® Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.

HBKS® Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.


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