Most Americans know very little about the process when a loved one dies. In fact, a new report called The State of Probate in America (study conducted by Trust & Will) revealed the following stats:
More than half of Americans have no idea what probate costs.
Less than half understand that inheritance is not automatic.
Only 2% of respondents know how long it takes to settle an estate.
Estate planning is a crucial aspect of managing your assets and ensuring that your wishes are honored after your death. One of the key elements of a good estate plan is avoiding probate, a legal process that can be time-consuming, costly, and stressful for your loved ones. Before you can really grasp how important avoiding probate is, I'll tell you a bit about what probate entails. Then I will give a brief summary of strategies to avoid it. Remember though, estate planning is complex and the explanations here are simplified to give you a basic understanding.
Probate - What It Is
While the probate process is different in each state, the general idea is the same. Probate is the legal process of validating a deceased person's will and distributing their assets according to their wishes. If there is no will, probate involves following state intestacy laws to determine the rightful heirs - that means the state decides who gets your assets. The process typically includes the filing of a petition in court, validating the will (if applicable), inventorying assets, paying debts and taxes, distributing the assets, and closing the estate.
I practice in New York and Florida and there are differences in the probate process. For example, the New York courts are slower and you can get through the process faster in Florida. However, Florida has a more stringent creditor notification process, including publication in a periodical in the county. In Florida, you must use an attorney for a formal administration. If your spouse died without a will in New York, half would go to the surviving spouse and half to the children, whereas in Florida, it would all go to the spouse. These are just a few of the differences between the states.
How Can you Avoid Probate?
There are many ways to avoid probate but proper estate planning depends upon your individual and family circumstances, your assets, and where you and your assets are located. This is meant to give you general information, but not every aspect might be right for you. And you should not handle your own estate planning - speak to a professional. Most estate plans involve a mix of a trust, joint ownership, and beneficiary designations.
Trusts
There are different types of trusts: revocable and irrevocable, inter vivos (created while you are living) and testamentary (created by a will). The most popular choice among my clients is an inter vivos revocable trust. With a revocable trust, you can be the trustee and you can make changes easily. The assets in the trust are considered yours and they do not receive any creditor protection. With an irrevocable trust, the assets are essentially no longer considered yours and you gain a level of asset protection from creditors. But you cannot make changes easily and must ordinarily file tax returns for the trust..
A trust is preferred over a will usually. The trust avoids probate. But a critical difference is that to be effective, your assets must be titled into the trust while you are alive. If you fail to do that properly, the trust is ineffective and you will need probate. That is why a pour-over will is an important and excellent backup.
Joint Ownership
Joint ownership in certain assets can also help avoid probate and simply things for your loved ones. This is helpful for bank accounts and other assets. But it requires that you remember to routinely update accounts, which can be onerous when you have many different accounts. If a joint owner dies, you have to update each account to ensure there is always another joint owner.
Beneficiary Designations
Designating beneficiaries on accounts that allow it is a straightforward way to avoid probate. Again, this requires remembering to routinely update many different accounts. And you must ensure you have contingent beneficiaries as well. A simpler way, depending on the type of account, is to make your trust the beneficiary. A good combination of all of the above can ensure that you have a solid estate plan.
FAQs
What is probate, and why should I avoid it? Probate is the legal process of validating a will or determining heirs and distributing assets. Avoiding it saves time, money, stress, and maintains privacy.
Can a will help me avoid probate? No, wills do not avoid probate. However, they are essential for specifying your wishes and appointing guardians for minor children.
What happens if I don’t have an estate plan? Without an estate plan, your assets will be distributed according to state intestacy laws, which may not align with your wishes.
Can I handle estate planning without a lawyer? While DIY estate planning tools exist, working with a lawyer ensures your plan is legally sound and tailored to your specific needs. Be wary of a firm where you only speak to a paralegal, fill out a form, and never speak to an attorney.
How much does estate planning cost? This really depends on your individual circumstances and what is going into an estate plan. Estate plans range in complexity and price from a simple will to a plan that includes multiple specialty trusts. The right estate plan varies and we would have to discuss your situation. There is no one-size fits all. Wills are the cheapest option, but they require probate later. Trusts are a bit more expensive, but avoid probate. Probate is much more expensive and time consuming. In Florida, many probate attorneys charge a percentage of the estate value. In most cases, I charge a flat fee to make your planning more affordable and predictable.
Seek Professional Assistance
It is critical that you don't try to handle your estate plan alone. Seeking the help of an experienced professional is important. I have extensive experience in estate planning, as well as handling probate, In both New York and Florida. I would be happy to discuss your estate plan with you and go over options that are tailored to your needs and circumstances.
Comments