Nobody likes to think about when they’ll die, but there’s at least one reason you should: your estate. Whether your estate is large or small, you want the right people to inherit it.
This starts with writing a will, which (among other things) defines how to distribute your property and names an “executor.” Once you die, the executor will be responsible for filing the will with a probate court that then authenticates the will.
If you die without leaving a will (aka intestate), the probate court gets to determine who should inherit your assets. Generally, it goes to your spouse first, then any surviving children, and then close relatives.
That said, there are ways to transfer your assets once you die without going through probate. In this post, we’ll over why you should avoid probate and then offer different five strategies on how to do it.
Why You Should Avoid Probate
There are three main reasons to avoid probate. For one, probate court is public. That means anyone will be able to see how much you were worth, what assets you owned, and any debts you left unpaid. You and your family may not be comfortable having this information out in the open.
Secondly, probate court costs money. Before your estate is distributed among heirs, the court takes a cut, sometimes as high as 10 percent! And then you still have to deal with attorney’s fees and newspaper publishing fees.
Lastly, probate takes time. Depending on the size of your estate and whether you left a clear will, probate can be a slow process. You may not want to leave the heirs of your estate waiting that long.
So here are some different ways to avoid probate:
1. Create a living trust
A living trust lets you transfer ownership of your assets to a trustee, who then distributes your assets the way you want when you die. An asset protection attorney can help you outline your wishes in a trust document. This way, you avoid probate court, and your assets are transferred much faster.
Plus, living trusts can be changed or revoked at any time. That’s why they’re also called “revokable trusts.” So, if you need to make changes while you’re alive (due to a change in the family, for example), you can.
2. Set up a life estate deed
A life estate deed lets you maintain control over a property while you are alive and then transfer it to beneficiaries once you die without going through probate. But here are some things to keep in mind:
A traditional life estate deed requires you to give up the right to sell or mortgage the property. However, in Florida, Michigan, Texas, Vermont, and West Virginia, you can set up an enhanced life estate deed (also known as a lady bird deed), which lets you retain the right to sell or mortgage the property. Either one allows you to avoid probate.
3. Reduce your estate while still alive
Another way to avoid probate is to simply give away your estate while you’re still alive. That way, you also avoid future estate taxes, and you get to see the positive impact that your inheritance has on your family.
But obviously giving away your estate while you’re alive also means giving up control over those assets. And keep in mind that the annual IRS exclusion for gifts in 2022 is $16,000. So, anything above that is subject to tax.
4. Name beneficiaries on payable-on-death accounts
Many bank and retirement accounts allow you to name beneficiaries by filing a payable-on-death form. By doing this, you make sure your funds are immediately distributed upon your death without going through probate.
The same goes for insurance policies, pension plans, individual retirement accounts (IRAs), 401(k) plans, stocks, bonds, and in some states even real estate.
5. Own property jointly
Lastly, you can opt to own property jointly with your beneficiary. For example, you could jointly own your home with your child. Then once you die, ownership would automatically transfer to them without going through probate.
There are a few different legal structures that let you own property jointly: joint tenancy with right of survivorship, tenancy by entirety (for married couples), and community property with right of survivorship (for married couples).
You can jointly own real estate, boats, cars—anything that has a title document.
Wrapping things up
Congratulations! You now know how to avoid probate when you die. And this isn’t even an exhaustive list... but it’s a good place to start.
Too many people don’t properly prepare their estate for when they die, leaving their family to figure out the mess. If you want to do them one last favor, make a plan that avoids probate. They’ll be grateful you did.