When it comes to distributing a loved one’s property after death, the two most commonly known methods are through executing a will, and going through court-directed probate. While either of these methods will get the job done, it may take a long time and a lot of money to finally get everything sorted.
However, there are ways to pass property to friends and family through alternative methods, avoiding probate and the court system altogether. Here is a short guide to traditional probate methods and their alternatives.
What is the Probate Process?
The term probate can have dual meanings depending on the circumstances of the case. Probating a will is the process of presenting the deceased’s last will and testimony to the appropriate court. There, a judge will grant permission to distribute the property as it is set out in the will’s language.
On the other hand, probate can also be used to signify when a person has died without a will. The process through which the deceased’s belongings are dispensed is dictated by the law in that jurisdiction and carried out with judicial oversight. Either way, the heirs of the deceased will need to interact with the appropriate probate court where their loved one lived to properly distribute their property and belongings to the right people.
What are Some Alternatives to the Probate Process?
Today, there are several alternatives to the traditional probate process. If your estate is complicated or you just wish to avoid probate court altogether, there are different ways to pass property to your heirs without probating a will. These may include:
- Trusts: A commonly used estate planning tool, a trust is a document that allows someone to transfer property into a separate legal entity for safekeeping for any named beneficiaries. The trust creator (trustor or settlor) appoints someone to hold or oversee the property (the trustee) for their beneficiaries or heirs. The trustee then distributes the property to the beneficiaries after the trust creator passes on, in accordance with the language in the trust. It is important to note that there is a difference between a testamentary trust and an inter vivos (living) trust. A testamentary trust is executed after the probate of a will. Living trusts are created while the person is still alive. But you can avoid probate altogether by creating an inter vivos trust and having the contents distributed upon the death of the settlor. An inter vivos trust costs more to set up and maintain than a will, but it can help your heirs avoid probate altogether, and because no probate court approval is needed, executing a trust often takes far less time than executing a will;
- Joint Tenancy: This is where two or more individuals own an equal, undivided interest in property. Most married couples already own property (like a home) in joint tenancy whether they realize it or not. When one person passes away, the other automatically inherits their share through the right of survivorship. The surviving party can then have the property transferred into their name without the need for court approval;
- Gifts To Minors: A probate-avoiding way to ensure that minor children are taken care of is through the Uniform Transfer To Minors Act (UTMA), which allows an adult to gift minors property in a non-probate manner. The person appoints a custodian to manage the property or assets for the minor until they reach the age of majority (usually 18 or 21 depending on the jurisdiction) and distribute it to them as needed. Legal title always stays with the minor, and once they reach the age of adulthood, they are entitled to full control of the property;
- Life Insurance: Life insurance is known as a non-probate property. This means that as long as beneficiaries are named in the policy, there is no need for any probate in order for those beneficiaries to receive the funds. Other pluses to life insurance are the fact that it is not subject to state or federal income tax, and in most jurisdictions it is also not subject to estate taxes;
- Payable-On-Death Bank Accounts: There is also a way to make bank accounts funds non-probate property. If you own the account in joint tenancy with a spouse or child, this already avoids probate. But you can also designate the account with a payable-on-death instruction, naming a person or persons that are entitled to the funds in that account once you pass away. These funds are available immediately with no need for probate; and
- IRAs/401Ks/Retirement Plans: Any money in an IRA or other retirement fund is also deemed non-probate property. These are directly distributed to the named beneficiary or beneficiaries.
Do I Need a Lawyer to Help Me Form My Estate Plan?
It is important to meet with an estate planning/probate attorney when planning for your future. They can advise you which tools and methods will accomplish your goals efficiently and ensure that you can take care of your loved ones should the worst happen.