There are many ways that you can avoid probate in your estate planning, but it’s important to consult with a qualified professional before making any major decisions. The wrong choice could lead to unforeseen complications that result in costly attorney’s fees and delays for your family.
A basic estate plan should include a will, power of attorney for health care, and a revocable trust. This can ensure that your wishes are followed, and that someone you trust will take charge of your affairs if you become incapacitated. It also allows you to minimize taxes and avoid unnecessary expenses and delay.
One of the most common mistakes is neglecting to update beneficiary designations for assets and accounts. A simple error in naming a new spouse on life insurance policies, or forgetting to change beneficiaries on IRAs, 401(k)s and annuities can cause these assets to go through probate. By reviewing and updating your records and contacting your custodians now, you can save time, money and aggravation for your family after your death or incapacity.
In addition, if you have joint accounts or assets with survivorship rights (like real estate, bank accounts and life insurance policies), these will bypass probate. However, if the joint account holder or designated beneficiary predeceases you, these will need to go through probate or administration, depending on your state’s laws.
Another way to avoid probate is to make gifts during your lifetime. This can be done using a gift tax return, and you don’t need to have as much wealth as you might think. You can give up to $16,000 per person per year, without incurring a gift tax penalty.
If you want to avoid probate entirely, you can put most of your assets into a trust. This will give your named trustees control of the assets immediately after your death, and can avoid any court proceedings that would have been required in probate. Creating a trust can be complex, and it’s important to work with an experienced attorney.
One of the biggest problems with trying to avoid probate through various methods is that it may not work. For example, if you leave something to your spouse in your will and they die before you do, your spouse can file a “right of election” and claim up to a third of your estate. This can have a significant impact on the rest of your estate, and may even cause it to be disallowed.
