Probate is the legal process for settling debts and distributing property when you die. If you die without certain estate documentation in place, the government will distribute your assets according to probate rules—not necessarily your wishes.
Depending on the size of your estate, probate can be expensive and time consuming for your loved ones. Family who relied on you for financial support may have to wait months for access to your accounts and cash.
Thankfully, with a bit of estate planning today, you can avoid probate and assure that your heirs have immediate access to your money and property.
Revocable living trust
A revocable living trust is an estate planning tool that allows your loved ones to have more control over your property when you die. Assets are placed in a trust while you are alive, managed by a trustee, and paid out to your beneficiaries after your death.
Because property held in trust is not legally owned by you (though you can name yourself trustee while you’re still alive, effectively maintaining control of your assets), it is not part of your probate estate, therefore not subject to probate. Property held in trust transfers easily to your beneficiaries without fees or interference from the government.
Although there are different types of living trusts, having one that is revocable means you can change it as your circumstances and wishes change during your lifetime.
Joint ownership of property
If more than one person owns property and one of the owners dies, the property simply transfers to the other owner or owners. And jointly held property is not subject to probate.
There are two common ways to jointly hold property:
- Joint tenancy with right of survivorship: When one of the owners dies, the property automatically transfers to the survivor.
- Tenancy by the entirety: When a husband and wife purchase property together, the property is automatically considered tenancy by the entirety. Note that the current language of the statute reads “husband and wife.” A bill is pending to allow same-sex couples the same survivorship rights, but in the meantime, same-sex married couples should consult a professional to create a tenancy by the entirety deed.
Beneficiaries
One of the easiest ways to ensure that your assets get to your loved ones right away is by naming beneficiaries on bank and retirement accounts.
Beneficiary designations override any information provided in your will, so it’s important to review your beneficiaries regularly. Life milestones such as marriage, childbirth, or divorce are especially important times to update beneficiary information.
Revocable living trust as beneficiary
Your revocable living trust can be a beneficiary on retirement and life insurance. This is particularly useful for minors or other dependents who, in some states, are unable to inherit these types of annuities.
Instead, you can name your trust as the beneficiary, and then the terms of your trust will determine how the money is paid to your heirs when they reach adulthood.
Depending on your wishes, the money could be distributed in one lump sum or over a period of time. You can even designate the money to be used for particular purposes, such as college.
Gifts
The size of your estate and your personal family situation will factor into how well these tools can keep your estate out of probate.
In fact, many states offer probate shortcuts for small estates, even allowing small estates to avoid it altogether. If you want to reduce the size of your estate, gifting assets while you are alive is a good way to avoid probate.
You can gift up to $15,000 per year per recipient without paying estate tax. Gifting more than this in the same year could subject the gift tax, which will be the responsibility of your gift recipient to pay.
If your goal is to reduce the size of a large estate, start early and make annual gifts of less than $15,000 to loved ones or charities.
