You may hear that a will has to go through probate, and it is natural to assume that this is a simple process that is no big deal. A court rubber stamps the matter shortly after the death of the testator, and the assets are distributed to the people that are named in the will as heirs.
This is a very incomplete understanding of what this process is all about, and we will explain why people avoid probate it in this post.
An executor is named by the testator when a will is used to facilitate postmortem asset transfers. After the passing of the testator, the executor would admit the will to probate, which is a court proceeding.
If there is no executor named in the will, the court would appoint a personal representative to act as the administrator. This court would also preside over an intestate estate matter, and they would name a personal representative under these circumstances as well.
Creditors are notified about the passing of the decedent, and the executor will be required to pay final debts, including taxes. They will obtain an Employer Identification Number from the Internal Revenue Service to give them the ability to start a bank account for the estate.
The court will determine if the will is valid, and interested parties that want to contest the terms could come forward while this process is underway.
Probate will take a variable length of time depending on the circumstances, but the estate will be in probate for at least eight months. The inheritors do not receive anything during this interim, and no one wants their loved ones to have to play this type of waiting game.
This process is not free. There is a payment to the executor, and there can be legal and accounting fees. Court costs enter the picture along with appraisal and liquidation expenses, and in the end, a noticeable portion of the estate can be spent during probate.
Any person that goes through the proper channels can obtain probate records to pry into the final affairs of the decedent, and this is yet another negative. When you add up all of the drawbacks, you can see why people avoid probate.
Every asset transfer does not go through probate even if you do nothing to proactively avoid the procedure. If you have an individual retirement account, it will be transferred to the beneficiary outside of probate, and this applies to life insurance proceeds as well.
You can add a beneficiary to your bank account or brokerage account, and this would make it a Totten trust or payable on death account. The beneficiary would not have access to the account while you are living, but they would inherit the account after your death.
They would present the death certificate to the institution and the funds would be released if everything is in order. Probate is not a factor when assets are transferred through a payable on death designation.
Joint tenancy is the condition of joint ownership of property. You can change the paperwork to name someone as a joint tenant, and they would own half the property. If you predecease them, they would inherit your share outside of probate.
Revocable Living Trust
A revocable living trust is the ideal solution if you want to implement a probate avoidance strategy. The creator of the trust is called the grantor, and if you are the grantor of a living trust, you can act as the trustee, so you would have total control the assets.
When you are drawing up the trust, you name a successor to become the estate administrator after you are gone, and they could be empowered to fill the role in the event of your incapacity.
When assets are distributed to the beneficiaries, there would be no probate court involvement, and this is just one of the benefits that living trusts provide.
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