There are so many things to think about when estate planning. You have to consider ways to make the inheritance process easier for your loved ones. The probate process makes it complicated, and therefore you most likely are looking for ways to avoid probate or simplify it, even though just a bit.
This brings a question to mind, “Does your estate have to go through probate? It is inevitable?”
The answer is no. Your estate does not have to go through probate if you put the right estate planning strategies in place.
Understanding the probate process and how you can avoid it
Probate is a legal process in which your will is validated by the court and your estate gets disbursed accordingly. In the absence of a will, probate may still have to take place.
Why, you ask.
Probate will take place when, and only when, you have assets owned in your NAME ONLY.
Think about your car, your house, your bank account, your business, your jewelry, or your computer. Whose name is on the document? Is it yours alone as the sole owner? Then those assets must pass through probate. And interestingly, these assets are what you can address in your will. You cannot pass ownership of your computer to your son when the computer is owned by both you and Billy, can you? Billy has a claim to it, so you cannot.
These assets that pass through probate are known as probate assets.
Probate and non-probate assets
Probate assets are assets held in your name alone, which must go through the probate process when you pass away. Whether or not you wrote a will, the court must conduct probate to determine who inherits the properties. If such assets are present in your estate at your death, then probate is inevitable.
On the other hand, non-probate assets are assets which pass outside of probate whether or not you write a will.
These assets include:
- Assets held in trust
- Assets held jointly with rights of survivorship
- Retirement account
- Bank account with transferrable-on-death clause
- Life insurance policy.
How do these assets pass outside of probate?
- Trusts avoid probate by the fact that any asset funded into the trust takes up the name of the trust rather than that of the individual. Hence, such an asset will pass directly to the beneficiary named in the trust.
- Your real property is another valuable property that typically goes through probate. Funding real estate into a trust is complex (but possible), hence, you should consider holding it with your spouse with rights of survivorship. Obviously, your spouse will inherit it directly without need for probate since they already hold a claim in the deed of the house.
- In your life insurance, 401k, and ToD accounts, you already designated a beneficiary when creating them. So these assets will pass down to the designated beneficiary immediately you pass away, whether you write a will or not.
Your estate will not go through probate if there are no probate assets in it
It goes without saying that there will be no need for probate when there are no probate assets.
Hence, the strategy to avoid probate will be to hold all your assets in the form of non-probate assets. An estate planning attorney can help you do that. Your attorney will help in establishing a living trust and funding the appropriate assets into it. Emphasis on appropriate. Not all assets should go into a trust. For example, it is expensive and complicated funding your real estate into a trust, so it is better to own it jointly with rights of survivorship. If you hold it with your spouse, then it goes directly to them.
In some cases, you may not need to avoid probate entirely. You may just want to reduce the value of property going through probate so that the cost will consequently be slashed. When you hold your most valuable assets in trust and leave the less valuable ones out, you have successfully minimized probate.
That is because the less the value of assets going through probate, the more complex and expensive probate will be.
Creating living trusts and planning towards probate is always more complex that writing a basic will, so you may want to speak with an attorney to be on the safer side.
To get in touch with an estate planning attorney or probate lawyer near you in New York, kindly call us today.