If you were to take a course called “Estate Planning 101,” the first topic that would be addressed would probably be probate. This is a legal process that is often part of the equation when assets are changing hands after someone dies.
For example, if you use a will to state your final wishes, you would name an executor in the document to act as the estate administrator. This executor would not be able to proceed independently. The will would be admitted to probate, and the court would provide supervision during the administration process.
There are some types of asset transfers that are not subject to the probate process, and we will look at a few of them here. In closing, we will quickly point out some reasons why people often take proactive steps to avoid the process altogether along with a commonly embraced solution.
Insurance Policy Proceeds
When you take out a life insurance policy on your own life, you name a beneficiary that will receive a payout after your passing. As long as the cause of your death was covered under the policy rules, the proceeds would be paid out to the beneficiary after you are gone. The probate court would not be involved in the transfer.
Individual Retirement Accounts
You can name a beneficiary when you have an individual retirement account, including a 401(k) account that is offered at your place of employment. After your passing, the beneficiary would assume ownership of assets in the account, and the transfer would take place outside of probate.
Payable on Death Accounts
If you open a bank or brokerage account, you have the option of adding a beneficiary. This is called a payable on death or transfer on death account. When the time comes, your beneficiary would obtain a copy of the death certificate and present it to the institution. Assuming everything is in order, the transfer would take place, and probate would not be a factor.
Property Held in Joint Tenancy
It is possible to name someone else as a co-owner of your property while you are still alive. This is called the condition of joint tenancy with right of survivorship.
To explain the estate planning implications through the utilization of a simple example, let’s say that you add your son to the title or deed of your home. He would become a co-owner as soon as the change was formerly recorded.
Assuming you do in fact predecease your son, you would become the sole owner of the home, and the probate court would not enter the picture.
Revocable Living Trusts
The types of transfers that we have looked at to this point are simply not subject to probate, but it is possible to use a living trust to transfer other forms of property outside of probate.
Why would you intentionally implement a probate avoidance strategy?
First, it is a time-consuming process, and the heirs do not receive their inheritances until the estate has been probated and closed by the court. We are talking about eight months in a very simple, straightforward case, and it can take considerably longer when certain circumstances exist.
There are expenses that accumulate during probate, and this is another drawback. Probate records can be accessed by anyone that is interested, so privacy is lost. Disgruntled parties could challenge the validity of the will during probate, and this can really slow down the process.
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Living trusts provide other benefits beyond the probate avoidance factor, and you should certainly understand all of the facts when you are planning your estate. Once you weigh the differences between a last will and a living trust, you may decide that a trust is a far better choice.
In any event, we can gain an understanding of your wishes and help you create a plan that provides for everyone that you love in the optimal manner. If you are ready to set the wheels in motion, you can send us a message to request a consultation appointment, and we can be reached by phone at 513-721-1513.