Estate Planning Basics – Bypassing Probate

The probate process can be long and costly, taking months and sometimes years to resolve. Often times the process averages six to nine months to complete but may take up to two years or more for some complex estates, tying up the assets that your family may need immediately. For a larger estates, costs may be as high as 5 percent of the estate’s value, leaving heirs with less than you intended during your lifetime. If the size and complexity of your estate warrants exploring alternatives to probate, you may want to consider one or more of the following:

Transfer Your Assets to a Revocable Living Trust
A trust is like a basket that holds your assets. A revocable living trust (also known as an inter vivos trust) is flexible enough to include almost any asset that you own. While you are living, you can act as the trustee and can add or remove property as you see fit. You can also terminate or amend the trust at any time. When you pass, your successor trustee distributes the trust assets to the trust beneficiaries, according to the trust agreement. Trusts require a significant amount of paperwork, are costly to create and maintain, and usually require a lawyer to draw up the trust documents. Also, a revocable living trust does not shield your estate from your creditors, creditors of your estate, or estate taxes.

Own Property as Joint Tenancy with Rights of Survivorship
Assets owned as joint tenancy with rights of survivorship pass automatically to the surviving joint owner(s) when you pass. To establish joint ownership, you may need to record new real estate deeds, titles for your car or boat, stock and bond certificates, statements of account for mutual funds, registration cards for your bank accounts, and other assets. This costs relatively little and does not usually require a lawyer. Some drawbacks are that the joint owner has immediate access to your property, and your joint owner’s creditors have access to jointly held property.

Designate Beneficiaries
Assets pass outside of probate if you establish payable-on-death provisions for your savings accounts and CDs. Ask your financial advisor or estate planning attorney to set up transfer-on-death provisions for brokerage accounts containing stocks, bonds, or mutual funds. Your retirement accounts, such as profit-sharing plans, 401(k), and IRAs can also pass along to designated beneficiaries. Finally, life insurance death proceeds will avoid probate, provided you name a beneficiary other than your estate.

Make Lifetime Gifts
Another way to avoid probate is to simply give away your property to your beneficiaries while you are living. Carefully planned gifting can also free those assets from gift and estate taxes. The following are usually nontaxable gifts:

  • Gifts to your spouse
  • Gifts to qualified charities
  • Gifts totaling $15,000 (in 2018) or less per person, per year ($30,000 in 2018 if you and your spouse can split the gifts)
  • Tuition payments on behalf of an individual directly to an educational institution
  • Medical care expenses paid directly to the provider on behalf of an individual

Other Ways to Bypass or Minimize Probate
If your estate is small enough to meet state guidelines, your beneficiaries can simply claim your assets by presenting a notarized affidavit. About half of the states in the U.S. set a limit of $10,000 to $20,000 of the qualified estate value, while the other half allow as much as $100,000. You can generally deduct estate expenses from your qualified estate value, such as taxes, debts, loans, or family allowance payments, plus the value of any other assets that pass outside probate (e.g., a home jointly owned with a spouse). Real estate is usually disqualified from claims by affidavit. Therefore, your estate may qualify even if it is fairly large. Another method is for your executor to file for summary, or simplified probate. This streamlined process is generally a paper filing only, requiring no attorney.

It is important to keep in mind that states vary widely regarding the allowable size of an estate for simplified probate and you need to check with your state’s individual laws and requirements for your specific situation.

Click the Links Below to Read More About Estate Planning Basics
Estate Planning Basics – Understanding Probate

Estate Planning Basics – Your Will

An Introduction to Trusts

Author: Paragon Financial Partners

Paragon Financial Partners, Inc. is a Registered SEC Investment Advisor. The topics discussed herein are for informational purposes only and should not be considered as a solicitation or offer to purchase or sell any securities. The financial strategies and guidelines discussed herein may not be appropriate for everyone as each individual circumstance is unique. Please review all tax information with your tax professional. Please review all legal information with your legal professional. If you have any questions or would like to speak with us, please contact us by phone at (310) 557-1515 or by email at info@paragonfinancialpartners.com.

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