You are here because you are interested in learning more about estate planning, and one of the first places to start is probate. This is a legal process that can enter the picture when assets are changing hands after someone passes away.
It is not always necessary, and we will share some of the reasons why you may want to avoid probate before we cover the transfers that would not be subject to this process.
Time, Privacy, and Money
Time, privacy, and money are three of the key commodities in life that are the most valuable, and all of them are lost when probate enters the picture. First, it is a time-consuming process that will take about nine months in most jurisdictions even if there are no complications.
No inheritances are distributed while the estate is being probated by the court, so this time lag is not going to be well received by the rightful inheritors.
Secondly, probate records are available to the general public, so anyone that is interested can find out how the resources were distributed. This loss of privacy is disconcerting in a general sense, and the information can cause hard feelings among interested parties.
Lastly, there are considerable probate expenses. The court will charge a filing fee, and the executor is entitled to remuneration for their time and trouble. An attorney and an accountant may be engaged, and there can be liquidation and appraisal charges along with incidentals.
If you use a simple will to state your final wishes, it would be admitted to probate by the executor, and this unwieldy process would commence. The probate court is also involved when someone dies intestate or without any estate planning documents at all.
Payable on Death Accounts
Banks and brokerages allow you to add beneficiaries when you open an account at their institutions. These are called payable on death or transfer on death accounts.
The beneficiary does not have access to the resources while you are living, but they would inherit the assets after your death. This transfer would not be subject to probate.
Joint Tenancy With Right of Survivorship
When you own property, you can rework the ownership documents to create a joint tenancy. You would add a co-owner to the property, and the surviving joint tenant would assume ownership of the entirety of the property after the death of one joint tenant. Probate would not be a factor.
This may sound like a neat and tidy solution, but there is one major drawback. The person that you name as the joint tenant would own half of the property as soon as you sign the documents. As a result, their portion of the property would be vulnerable if they are sued for any reason.
Individual Retirement Accounts and Life Insurance Proceeds
The beneficiary of an individual retirement account will assume ownership after the death of the original account holder, and the probate court would not be involved. And if you are the beneficiary of a life insurance policy, you would receive the proceeds in a probate-free manner.
Revocable Living Trust
You can proactively implement a probate avoidance strategy through the creation of a revocable living trust. There would be no loss of control of the assets, because you would act as the trustee while you are alive and well.
After your death, the beneficiaries would receive distributions in accordance with your wishes, and probate would not be a factor.
In addition to the probate avoidance, there are some other benefits. The administration process is streamlined because all or most of the assets that comprise the estate would be owned by the trust.
You can include a pour over will to allow the trust to absorb assets that were in your direct possession at the time of your passing.
Through the inclusion of a spendthrift clause, you can protect the principal from the beneficiary’s creditors. If you choose to do so, you could instruct the trustee to provide incremental distributions over time to prevent reckless spending.
Schedule a Consultation Today!
Our doors are open if you are ready to work with a Naperville or North Aurora, IL estate planning attorney to put a plan in place. You can send us a message if you are ready to set up a consultation appointment at either location, and we can be reached by phone at 631-568-8611.