Three Simple Ways to Avoid Probate Costs
The bad news: When someone dies owning property in their sole name without a beneficiary, their loved ones must go through a court-supervised process called probate. Probate is required to transfer property out of the deceased person’s name and into the names of beneficiaries or heirs.
This process can involve attorney fees, executor fees, appraiser fees, accountant fees, court filing costs, and various other state-required expenses. Depending on the estate’s size and complexity, probate costs can reach tens of thousands of dollars.
The good news: Many of these expenses can be minimized—or avoided entirely—by keeping your accounts and property out of probate. Here are three simple ways to do that.
- Name a Beneficiary
Probate applies only to accounts and property owned solely in a person’s name that do not have beneficiary, payable-on-death (POD), or transfer-on-death (TOD) designations at the time of death. When an account or piece of property has a valid beneficiary designation, it transfers automatically to that beneficiary without any probate court involvement.
Common items that allow beneficiary designations include:
- Life insurance policies
- Annuities
- Retirement plans
- Real estate (in some states)
Caution: Naming a beneficiary means they receive the asset outright, with no conditions or restrictions. This exposes the inheritance to the beneficiary’s creditors, lawsuits, or divorcing spouses. You also lose the ability to control how the beneficiary uses the asset. In addition, beneficiary designations do not help if you become incapacitated; the beneficiary has no authority until your death. During incapacity, a financial power of attorney or a court-appointed conservator or guardian must manage the asset.
- Own Accounts and Property Jointly
Another way to avoid probate is to own property or accounts jointly. Like a beneficiary designation, joint ownership transfers a deceased owner’s share to the surviving owner(s) automatically and without probate.
Common types of joint ownership include:
- Joint tenancy with rights of survivorship: The deceased owner’s interest transfers directly to the surviving joint tenants.
- Tenancy by the entirety: A special form of joint tenancy available only to married couples in certain states.
- Community property with rights of survivorship: Used in community property states, allowing the surviving spouse to receive full ownership at the first spouse’s death.
Because state laws vary, it is essential to determine which form of joint ownership fits your situation.
Caution: Adding a joint owner exposes your property or account to that person’s creditors, lawsuits, or potential divorce—immediately, not just after your death. A creditor could seize jointly owned assets while you are still alive. (One exception is tenancy by the entirety, which can shield property from creditors of one spouse.)
- Create and Fund a Revocable Living Trust
A revocable living trust is one of the most reliable ways to avoid probate and its costs. After creating the trust, you must transfer ownership of your accounts and property to the trust or name the trust as the beneficiary—a process known as trust funding. Assets properly transferred into a trust are not considered probate assets.
While you are alive, you serve as trustee and maintain complete control and enjoyment of the trust’s assets. If you become unable to manage your affairs or upon your death, your chosen successor trustee takes over and manages or distributes trust property according to your instructions. When properly drafted and funded, a revocable living trust offers a smooth, private, and efficient way to pass down your assets.
There Are Tools To Help You & Your Family
If you are ready to create an estate plan that keeps your loved ones out of probate court and avoids unnecessary expenses, contact a professional estate planning attorney who can help you determine whether avoiding probate is right for you and the best strategies to accomplish it.
Kerlin Walsh Law, located in Palos Heights, is dedicated to drafting Wills and Trusts with warmth and competence. After over 25 years of consulting with clients in her office, their homes and hospital rooms, Eileen Kerlin Walsh, J.D., Principal Attorney, has discovered no area of law is more important or rewarding. Eileen has helped hundreds of families preserve their assets and their family harmony and is ready to help you with her “Healing Law” approach. Need a Will or Trust? Call 708.448.5169.
