Ten Ways To Avoid Probate
When someone dies, his or her assets go to people named in a will. If there is
no will, the property goes to heirs as set by state law. Courts manage the transfer of
property in a procedure called “probate,” a process many people want to avoid
because it can be long and expensive.
Over the years several ways have been created to pass property outside the
court’s probate process. Today there are more options then ever, but they
require some advance planning. Here are ten of the best ways to avoid probate.
1. Transfer Property While You are Alive.
One way to avoid probate is to transfer some of your property while you are alive.
Money, stocks, land, cars or any other property can be given to charities tax free.
Gifts to anyone else, up to $13,000 each per year (for 2009), are also tax free. So is using
your money to pay someone else’s medical or education costs.
Some people set aside money, jewelry, land or stocks knowing they will
never use it. They plan to leave it to loved ones, friends and charities and
relish the joy these gifts will bring after their own death. Making the gifts
while you are alive can avoid costs and complexities of probate, and also let you share
in the joy of giving.
2. Own Property as Joint Tenants.
There are different ways to
hold title to money, land, stocks and most other property. "Joint tenancy” is a form of property
ownership for two or more people who want to avoid probate. When any “joint
tenant” dies, the property automatically goes to the remaining joint tenant(s)
who are still alive. The last to survive becomes sole owner of the property. No
court probate process is involved.
3. Set Up Bank Accounts With “Pay on Death” Instructions.
Savings and checking accounts can be set up with instructions that at your death,
the bank must pay the money to a person (or persons) you name. When you die, the
person you named to be “paid on death” will have the right to receive the funds
in the account without going through the probate process.
4. Name a Beneficiary for Securities.
Most states have laws which let you name someone to receive your stocks and
bonds when you die. Under these laws, the company that issued the stocks or
bonds must be provided adequate evidence of the original owner's death. The company
then re-registers the securities to the person named by the original owner.
5. U.S. Savings Bonds.
U.S. Savings Bonds can also be passed at
death to a beneficiary outside of probate. This just requires the purchaser,
when buying the savings bond, to name a person to be “paid on death.” The bond
belongs to the original recipient while he or she is alive. When the person dies, the
savings bond automatically passes to whoever is named.
6. Name a Beneficiary for Retirement Accounts. Normally
paperwork to open a retirement account, like an IRA or 401(K), has a line to
name a beneficiary in case the account holder dies. Funds or assets in the
account pass to the beneficiary without going through the probate process. If
the account holder is married, the spouse may have rights in the funds.
Therefore a married person who wants to designate a beneficiary other than his
or her
spouse should first consult a lawyer.
7. Use Life Insurance.
The basic operation of life insurance is
that premiums are paid during the life of the insured person. When the person
dies, the
insurance company pays the policy benefit to whoever is named as beneficiary.
The policy benefit payment does not go through the court’s probate procedure.
Policy benefits can be large amounts of money, making life insurance another
way to pass substantial amounts to others outside of probate.
8. Put Property in a Living Trust.
A living trust is a transfer of property to
someone else to hold title as trustee, but you still have use and control of the
property while alive. When you die, the trustee takes over and distributes the
property in accordance with your instructions in the trust document. Since the trust is the
legal owner, the property is not officially part of your estate for probate
purposes, so it stays out of probate.
9. Use Community Property Rules.
In nine states, wages, other
earnings and most other property acquired during marriage automatically belong
to husband and wife together, as “community property.” The states are Arizona,
California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and
Wisconsin. Married couples in Alaska can choose to have the same treatment by
signing an agreement saying so.
In community property states, if a spouse dies, it is possible for all community
property to be recognized as belonging to the living spouse without going
through probate. The procedures differ in each state. For example, in some
states the property must have been designated as community property “with right
of survivorship.” So consult a lawyer. Also, community property treatment does
not apply to gifts and inheritances from others. These belong just to the
individual spouse who receives them.
10. Simpler Procedures for Small Estates.
Many states have rules to let smaller
estates avoid probate or go through a streamlined process. States have different
limits on what is a “small estate.” Typical caps are $10,000, $20,000,
$50,000 or $100,000.
In one simplified procedure, property that normally goes through probate can
be claimed by presenting a death certificate and sworn statement showing the
recipient’s right to the property. In another procedure the court uses
streamlined steps to open the probate, conduct the process, distribute the
property and conclude the probate quickly.
These are ten of the best ways to avoid probate. Advance planning on how
to avoid probate can help your property pass much faster and easier to the people
you want to receive it after your death. For help in planning your estate and
to learn which probate avoidance methods are best for your personal and family
situation, please call us.
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