Probate is the legal process of settling an estate after a person’s death.
While probate can be necessary for certain situations, it often involves significant costs, delays, and public disclosure of personal and financial information. For many families, the goal is to avoid probate and minimize the associated expenses and headaches.
Here are some strategies for avoiding probate and the costs and delays that come with it.
1. Use Joint Tenancy with Right of Survivorship (JTWROS)
Joint tenancy with right of survivorship is a form of property ownership that allows assets to pass directly to a surviving joint owner upon the death of one of the owners. To create a JTWROS, you must hold the property with another person and specify in the title that you own the property as joint tenants with right of survivorship. When one of the owners dies, the surviving owner automatically becomes the sole owner of the property without the need for probate.
2. Transfer on Death (TOD) Deeds and Payable on Death (POD) Accounts
A transfer on death (TOD) deed is a way to transfer real property (e.g., a house) to a designated beneficiary after your death. TOD deeds are available in some states, and they allow you to transfer property to your designated beneficiaries without probate. The same concept applies to payable on death (POD) accounts, which allow you to transfer money to a designated beneficiary upon your death without probate.
3. Use a Living Trust
A living trust is a legal arrangement that allows you to transfer your assets to a trustee during your lifetime, who then manages the assets for the benefit of your beneficiaries after your death. Because the assets are already in the trust at the time of your death, they are not subject to probate. You can serve as your own trustee and retain control over your assets during your lifetime, but you must appoint a successor trustee to manage the trust after your death.
4. Beneficiary Designations
Beneficiary designations are a simple and effective way to transfer assets outside of probate. You can name a beneficiary for many types of assets, including retirement accounts, life insurance policies, and annuities. When you name a beneficiary, the assets will pass directly to that person upon your death, bypassing probate.
5. Gifting During Life
Gifting assets during your lifetime is another way to reduce the size of your estate and potentially avoid probate. You can give away up to $15,000 per year per person without incurring gift tax consequences. If you are married, you and your spouse can give away up to $30,000 per year per person. If you have a large estate, you may consider making larger gifts over a period of years to reduce the size of your estate and minimize the need for probate.
6. Power of Attorney
A power of attorney is a legal document that allows you to appoint someone to act on your behalf in the event you become incapacitated. A power of attorney can be a valuable tool for avoiding probate because it allows your designated agent to manage your assets and make decisions on your behalf without the need for court intervention. If you have a living trust, you should still consider executing a power of attorney, as the trust will not be effective until after your death.
7. Review and Update Estate Planning Documents Regularly
Finally, it’s important to regularly review and update your estate planning documents to ensure that they accurately reflect your current wishes and that your assets will pass outside of probate in accordance with your wishes. Estate planning laws and tax laws change frequently, so it’s important to stay informed and make changes as needed
