Previously we have discussed the probate process and probate fees, after reading on probate fees it is understandable that one wants to avoid probate fees as much as possible. Avoiding probate fees legally can be somewhat of a challenge and many factors need to be taken into account, such as ownership of all assets, tax implications as well as family relationships. Sometimes trying to avoid probate fees can end up costing you more. Please speak to qualified estate planner or estate lawyer about your personal situation. Having said that there are some common ways to avoid probate fees.
Why Avoid Probate?
There are many reasons why one would want to avoid probate:
1. Time- The probate process can be a very lengthy process, the average probate process is about one year long with most lasting longer than a year; some even last decades. Your assets will be tied up in court proceedings and your family will not have access to it, this is a good motivation to avoid probate.
2. Privacy– Probate process is not a very private matter; once probate file is opened documents will be available to the public so anyone who wants to can access them. By avoiding probate most people hope to keep some privacy.
3. Cost- This is probably the biggest reason why you would want to avoid probate; probate fees can take up a large chunk out of your estate so why not avoid it if you can?
How to Avoid Probate
One way to avoid probate and probate fees is establishing a living trust. A trust involves generally three parties the Grantor, the trustee and the beneficiary. The Settlor is the person who creates the trust, trustee is the person who is responsible for the trust and beneficiary is the person who receives the benefits from the trust. It is very common in a living trust for all parties to be the same person i.e. Settlor = Trustee = Beneficiary. A living trust does not go through probate, the successor trustee you named when creating the trust will simply transfer the ownership to the beneficiaries you have named. This process does not involve courts or any probate fees and will be kept private. More on living trust.
Joint Ownership of Property
Another simple way to avoid probate is to have joint ownership of properties. Joint tenancy with right of survivorship in this type of ownership the property owned in joint tenancy automatically passes, without probate, to the surviving owner when one owner dies.
Giving away property while you’re alive helps you avoid probate as well. You can simply gift the items to the beneficiaries while you are alive, if you do not own the properties at death it will not go through probate. Note that the gifts maybe subject to taxes.
Avoiding probate is understandable given the issues with the probate process and the cost of probate, these are a few common strategies used to accomplish this goal but may not be the perfect solutions for everyone. Each of the above mentioned strategies has its own drawbacks and costs and one should speak to a qualified estate planner before implementing any one of them.
Ray is an ex-financial adviser and the founder of Financial Highway. Currently working in the financial industry and working towards completing his Chartered Financial Analyst, CFA, designation.