You have probably heard tales about the unpleasant aspects of probate. Perhaps you took the estate of your parents or other loved ones through probate, and you know first hand of the frustration, delay and expense. Like many, you may think that probate, like death and taxes, is just part of life.
While it is true that the average estate will go through probate, especially if there is no estate plan, it is also true that there are a limited number of ways to bypass the process. Taking advantage of any of these options may spare your loved ones at least some of the hassles involved in the probate process.
Trusts are trustworthy options
Perhaps the most commonly known way to bypass probate is to establish a revocable living trust. Using this estate planning tool, you fund your assets to the trust, changing their titles so that the trust becomes the owner instead of you. The trust is revocable, and you are the trustee, so you can change its contents as long as you are able. Once you pass away, or if you become incapacitated, your chosen successor trustee takes over and distributes its contents according to your wishes.
Since legally your estate is not the owner of the assets funded to the trust, those assets do not need to pass through probate with the rest of your estate. Any assets you have not titled over to the trust, however, still must go through the probate court.
Other ways to skip probate
Another plan for avoiding probate is adding beneficiaries’ names to your accounts. If you make your bank accounts or investments joint accounts and assign rights of survivorship to the beneficiary named as your joint owner, the contents of the account automatically pass to that beneficiary. You may also do this with real estate deeds. The drawback is that those assets become taxable for those named on the account, and they may also be assets on the table during legal battles, such as lawsuits or divorce.
Of course, if you own life insurance, you must name beneficiaries. Retirement funds, IRAs and others already have beneficiary designations, so they do not go through probate. You can also designate beneficiaries for your bank accounts and other investments. These are known as “payable on death” or “transfer on death” accounts.
The most drastic way to avoid probate is to get rid of everything you own before you die. This is risky and perhaps foolish because it will leave you nothing to live on. If this is your plan, you may consider placing those assets in a trust instead. An attorney can review your circumstances and help you determine the best options for your estate.