Putting your assets into a trust, naming designated beneficiaries, or adding a joint owner can help your estate avoid probate
After someone dies, their estate generally needs to be probated. Probate is the process of administering the deceased person's estate, like proving a will if there is one, and ultimately distributing assets to beneficiaries, which can take months to years. That means your loved ones may not get an inheritance you left for them through a will for quite some time. Luckily there are ways to avoid the probate process and keep any involvement with a probate court to a minimum.
The number one way you can avoid probate is by owning as few probate assets as possible at the time of your death by taking the following measures:
Opening a living trust (inter vivos trust)
Making assets payable or transferable on death by naming a beneficiary
Making someone else a joint owner of an asset
Giving away assets as a gift
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If you do this, your estate may be be considered "small," and qualify for a different type of probate procedure that's more informal and easier to carry out. Even if you don't end up avoiding probate entirely, using these estate planning tools can help your heirs get at least some of your assets and property more quickly after you die without the hassle and cost of probate.
You can fill out a form to make certain assets pay out or transfer to the named beneficiary upon your death. Assets with a designated beneficiary avoid probate and transfer directly to the person you chose. Beneficiary designations are available for a life insurance policy, retirement accounts, bank accounts, brokerage accounts, and bonds. Financial institutions and insurance providers release the money or transfer the account to the beneficiary without probate court proceedings. (Sometimes these assets are called payable- or transferable-on-death accounts.)
In certain states, you can also name someone to receive cars and real estate property by using a transfer-on-death-deed, a type of beneficiary deed.
Learn more about how a beneficiary designation works.
A trust is a separate entity that operates separately from a will and outside the probate process. When you set up a trust, you can create guidelines and rules that the trustee must follow. (If you’re the trustee, then a successor trustee will take over when you die). Trust property can avoid probate, as long as you transferred it into the trust before your death. On the other hand, assets transferred into a trust through instructions in a last will and testament — like by a testamentary trust — do not avoid probate.
Related article: Should I put my house in a trust?
Complex irrevocable trusts have the added benefit of minimizing your estate tax liability and providing asset protection. If you aren’t wealthy, you can still benefit from a simple living revocable trust, which can be amended at any time. You can place high-value assets into the trust, and they’ll transfer to your heirs without getting tied up in probate.
You can open a trust with Policygenius, and you'll also get a will.
Another way to avoid probate is to hold an asset with someone else. Under certain styles of joint ownership, the asset can transfer to the surviving owner and become their property automatically once you die. For example, if you eventually want to give your house to your daughter, you can retitle the deed to reflect joint tenancy with her as the co-owner during your lifetime. Upon your death, she becomes the sole owner of the property, which avoids probate. (She should be able to claim the property at the recording office with the death certificate.)
Only certain forms of joint ownership avoid probate, which you’ll need to specify on the deed or ownership form:
Joint tenancy, sometimes referred to by its official name joint tenancy with rights of survivorship
Tenancy by the entirety, works similarly to the above, but not available in every state
Community property, a category of marital property that only exists in a handful of states
You can avoid probate by giving away your assets to your beneficiaries while you're still alive and owning nothing at the time of your death. This may not be ideal if your chosen heir is spendthrift and it may result in tax consequences — you have to pay a federal gift tax if you give more than the exclusion amount. An estate attorney can help if you have tax concerns when creating your estate plan.
Learn more about when you have to pay gift tax.
Not every estate needs to go through probate. Almost every state allows a small estate, worth under a certain dollar amount, to be settled with an informal probate procedure — like informal probate, summary administration, or administration via small estate affidavit. In order to use one of these procedures, which bypass formal probate and sometimes even any contact with the probate court, the estate must be worth less than a certain dollar amount set by each state. (The executor or administrator can typically use these procedures even if the decedent died without a will, but it varies by state.)
That means you can avoid probate by making sure your estate qualifies as a small estate. Not all assets are calculated in the valuation of the estate, like the assets that avoid probate discussed in the measures above. States may also exclude other assets from being counted toward probate. For example, under California will and probate law you can avoid formal probate if the value of your probate estate falls below $166,250 and cars are excluded from valuation. Under Florida will and probate law the value of the estate must be less than $75,000 to avoid probate and settle the estate with a summary administration procedure.
Learn more: Does a will have to be probated?
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