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Bits of Wisdom from an Estate Planning Attorney

Bits of Wisdom from an Estate Planning Attorney

red colored pen highlighting an "important" word, probate lawyer

Probate is easy to avoid with adequate planning and foresight. Transferring assets, designating beneficiaries and taking advantage of a few estate planning tools can help ensure that people avoid probate.

Probate Can Be a Long, Expensive Process

Probate is a legal process that decides how a person’s assets are to be distributed upon death. Although probate is often a routine procedure, it can become expensive and drawn out if putative heirs (people who were excluded or under-included) contest the will. Fortunately, probate can be avoided by taking a few preventative measures.

Get Rid of Property

The easiest but most extreme method to avoid probate is to give assets away. However, this strategy is impractical for two reasons. First, the testator still needs to survive on his property. Second, some states have provisions which clawback gifts that were given away within a certain period preceding the death.

One technique is to transfer assets into a trust. The living trust takes the title of the property while allowing the testator to use it for the duration of his life. Upon death, the property inside the trust goes directly to the heirs.

Transfer Property into Joint Ownership with Right of Survivorship

With joint ownership with right of survivorship, the property is jointly owned, and upon the death of one of the owners, ownership is automatically transferred to the other owner. However, there are drawbacks:

  1. The surviving owner could be subject to the gift tax;
  2. If the joint owner passes before the testator, then the testator owns 100 percent of the property, and it all passes into the estate; and
  3. If the joint owner divorces or is sued, the ex-spouse or creditor could go after the jointly-held property.

Beneficiary Designations

Beneficiary designation identifies beneficiaries in the terms of the account and automatically transfers to them upon death. Life insurance, IRAs, annuities, and 401(k)s are all types of “beneficiary designation” accounts.

“Pay on death” or “transfer on death” accounts are bank accounts which transfer assets to the named beneficiaries upon death.

Revocable Living Trust

A revocable living trust is a written agreement which is empowered to hold title over the property. Accordingly, when the testator dies, the trust owns the property and probate is avoided. Prior to death, the testator transfers ownership of his assets to the trust (“funding” the trust). Once the trust has a title, the property exists outside of the testator’s estate and thus avoids probate.

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