Probate is a court supervised process of distributing a deceased individual’s property through the terms of their will. There may be disputes as to the interpretation of the will, or to the will itself, so probate can become quite complicated. However, put quite simply, probate is essentially a will.
How Can I Avoid Probate of My Estate?
There are several methods for avoiding probate of your entire estate, or particular property in it. Planning to avoid probate may be a wise decision, and it may save your heirs money. In addition, probate takes time, sometimes a year or more. Having your estate tied up for this period could be detrimental to your heirs.
Here are some other ways of disposing of your property outside of a will:
1. Joint Tenancy
A joint tenancy exists where each tenant has an equal, undivided interest in the whole asset or property. Most married couples who own a home or have a joint bank account already have a joint tenancy, whether they know it or not. A joint tenancy is not limited to two people though. You can have a joint tenancy with any number of people, as long as each tenant enters the joint tenancy at the same time, and has an equal share.
If you and your spouse own a home in joint tenancy, the moment one spouse dies, the deceased person's share automatically shifts to the surviving spouse. This is called the right of survivorship. The property or asset must then officially be put in the name of the surviving joint tenant or joint tenants. The state tax board of your state may place a lien on the joint account or property to make sure state taxes are paid, especially if the surviving tenant is not a spouse. In this event, the state would have to grant a release if you wanted to access the account or sell the property.
2. Tenancy in Common
A tenancy in common allows each tenant to own a share of property. Under a tenancy in common, the shares don't have to be equal. When one tenant wants to sell their share, they may. Few married couples own their property in this manner. When one tenant dies, instead of a right of survivorship, the share of the deceased tenant may be left as an asset of that person's estate.
The Uniform Transfers to Minors Act (UTMA) regulates gifts to children until they reach the age of majority (either 18 or 21 depending on state law). Under this law, a gift occurs when the donor places the property or asset in the name of a person known as the “custodian.” Legal title is with the minor, yet the custodian manages the asset until the minor reaches the age of majority, at which time the asset is fully given to the title holder. The custodian deems how much of the proceeds of the property to distribute to the minor until the minor reaches the age of majority. The custodian may not profit from the gift.
4. Bank Accounts: Payable on Death
A bank account owner may name a person to automatically receive the account balance on the death of the owner (also known as a Totten Trust). Until then, the person to whom the account balance is promised has no right to the account, since that individual may be removed from the account or the account may be closed. Many states apply this option to shares of stocks and bonds, which is called "Transfer on Death."
5. Life Insurance
The proceeds of a life insurance policy usually go directly to the beneficiary without the intervention of a court. These proceeds are not taxable as federal or state income, and in most states there is no estate tax on life insurance proceeds. Additionally, there is no federal estate tax on life insurance payouts.
6. Retirement Plans and/or IRAs
Any funds in an Independent Retirement Account (IRA) or a retirement plan go directly to the chosen beneficiary. There is no court involvement in disbursement of these funds.
Do I Need a Probate Lawyer to Help Plan My Estate?
Consultation with an estate planning attorney is essential to crafting an estate plan that is sensitive to both your needs and those of your loved ones. A lawyer will know which type of will or trust is right for you, and do their best to limit your tax liability.