A well-thought-out and comprehensive estate plan should accomplish numerous goals that go above and beyond simply creating a roadmap for the distribution of your estate assets after you are gone. One estate planning goal that should be included in most estate plans is probate avoidance. With that in mind, the estate planning attorneys at DeBruyckere Law Offices explain why probate avoidance planning is important and how you can incorporate it into your estate plan.
What Is Probate?
Over the course of your lifetime, you will acquire several assets that make up your “estate.” Your estate may include real or personal property as well as tangible and intangible assets. Upon your death, all those estate assets potentially become part of the probate of your estate. Probate is the legal process that will ultimately transfer your estate assets to the new owners; however, there are numerous steps your estate must go through before assets can be transferred. If you leave behind a valid Last Will and Testament, the individual named as your Executor will oversee the probate of your estate. If you die intestate, or without a valid Will, any competent adult can volunteer, or be appointed by the court, to oversee the process.
Why Is Probate Avoidance Important?
Before discussing how to avoid probate, it helps to understand why avoiding probate is such a desirable objective. There are several reasons why probate avoidance should be among your estate planning goals, including:
- Formal probate is a time-consuming process. Even without unexpected delays or litigation, an estate will still take months or years to get through probate. In Massachusetts and New Hampshire, creditors have six months to a year to file claims against the estate. Those claims then need to be reviewed and approved or denied. Approved claims must be paid according to priority determined by law. If the estate becomes involved in litigation or there are other unforeseen delays, it can take over a year for even a modest estate to get through probate. For larger, more complex estates it can take several years to reach the end of the probate process.
- Probate can be expensive. Along with court costs and related out-of-pocket expenses, everyone involved in the probate of an estate is entitled to a fee. This includes not only your Executor/Personal Representative, but accountants, financial advisors, appraisers, real estate agents, and other professionals retained to help probate the estate. All these expenses are paid out of estate assets, ultimately diminishing the value of the estate passed down to beneficiaries and/or heirs at the end of the process.
- Probate can be stressful for surviving loved ones. Along with trying to navigate the grieving process, your surviving loved ones will need to focus on the legal and practical steps involved in probating your estate if your estate is required to go through formal probate. The longer it takes to get through probate, the longer your loved ones will be constantly reminded of their loss. Probate can be particularly stressful for the individual you appoint to be your Executor because he/she is responsible for overseeing the entire process. Moreover, if the estate becomes embroiled in litigation, your surviving loved ones may end up in a divisive family battle that creates a lifelong rift among family members.
How Can I Incorporate Probate Avoidance into My Estate Plan?
Given the time, cost, and emotional trauma involved in probating even a relatively simple estate, it should now be clear why incorporating probate avoidance strategies and tools into your estate plan is advisable. The key to diminishing (or even avoiding) the time and expense of probate is to reduce your probate estate. This can be accomplished by making gifts while you are alive instead of waiting until after you are gone and/or by leaving behind “non-probate” assets whenever possible. As the name implies, non-probate assets are those that are not legally required to go through probate and include things such as:
- Assets held in a trust. Assets held in a trust bypass probate because they can be distributed without the need to go through probate. By creating a trust, you can transfer most probate assets into the trust and effectively turn them into non-probate assets. Moreover, trusts can provide several other estate planning benefits as well, such as incapacity planning, protecting assets designated for minor children, and asset protection.
- Title property jointly with rights of survivorship. You may co-own assets with a spouse, adult child, or business property. If so, it is crucial to understand how that property is legally titled. The right type of co-ownership (typically joint ownership with rights of survivorship) can be beneficial for avoiding probate. Your interest in your house, for example, could transfer directly to a spouse or adult child after your death if titled properly.
- Designate financial accounts as “payable on death (POD)” or “transfer on death (TOD).” Assets held in a financial account, when designated as POD, will automatically become the property of the designated beneficiary upon your death; however, the beneficiary has no legal rights to the assets while you are alive. Some states also allow other assets, such as vehicles or securities to be designated as TOD or POD accounts.
- Be strategic with life insurance. Life insurance proceeds are non-probate assets and, therefore, are paid out directly to the beneficiary after your death. What you may not know is that you can use this fact strategically within your estate plan. For instance, you could create an irrevocable life insurance trust that uses the proceeds of a life insurance policy to cover the expense of your funeral and burial.
Contact a Beverly Estate Planning Attorney
For more information, please join us for one of our upcoming FREE seminars. If you have additional questions about estate planning and probate avoidance, contact our estate planning attorneys in our North Andover, Woburn, and Beverly offices at (978) 969-0331. Our Londonderry and Nashua, New Hampshire office can be reached at (603) 894-4141.
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