Probate can be expensive and time consuming, but one of the biggest issues with probate is that it’s public. During probate, the assets you owned and the way they’re being distributed after your death become publicly available knowledge for anyone who’s interested. Probate’s public nature may also draw undesired attention from disgruntled family members or other unscrupulous parties looking for ways to challenge the disposition of your assets.
Here’s a quick guide to some estate planning strategies you can use to keep most (or possibly all) of your estate out of probate.
What is probate?
Probate is the legal procedure through which a court confirms the validity of the deceased’s will, determines what the value of their estate is, provides for the payment of taxes and other debts, resolves creditors’ claims, and transfers their assets to their heirs.
Under certain circumstances, probate may actually be desirable—for example, if you’re more comfortable with having a court resolve issues involving your creditors and heirs. Probate also places strict time limits on creditor claims and ensures that claims are settled quickly, which may be an advantage in some cases.
Strategies for avoiding probate
However, if you’d like to keep your family matters private by avoiding probate, there are several strategies that can help you avoid or minimize the process (disposition of personal property, guardianship of minor children, and certain other matters will still require a will—and probate—to deal with).
The simplest way to keep your assets out of probate is to designate beneficiaries or title assets in such a way that they can be transferred directly to your beneficiaries outside of your will. For instance, you’ll want to be sure that you have valid, appropriate beneficiary designations for assets like life insurance policies, retirement plans, and annuities.
“Payable on death” (POD) or “transfer on death” (TOD) designations may also be available for assets like bank and brokerage accounts—these designations allow these assets to pass directly to your designated beneficiaries and thus avoid probate. However, it’s worth noting that while most states allow POD or TOD designations, not all financial firms and institutions make these options available.
Some people also avoid probate for homes or other real estate (in addition to bank and brokerage accounts or other assets) by holding title as “joint tenants with rights of survivorship” or as “tenants by the entirety” with either a spouse or child.
However, there are three significant drawbacks to this approach:
- Once the property is retitled, the asset owner can’t change their mind
- When titles are held jointly, the joint owner has some control over the asset, and the asset is exposed to the joint owner’s creditors
- There may be unwanted consequences for taxes
A small number of states permit TOD deeds. Using a TOD deed, you can designate a beneficiary who succeeds to ownership of your real estate after your death. This allows you to avoid probate but doesn’t require you to make an irrevocable gift or expose your property to the beneficiary’s creditors.
Contact us for help
Because probate is a public process, many estate plans aim to avoid the process to whatever extent is possible. If you have questions or would like to discuss your options, contact us. We can help you implement the right strategies in your plan so you can save your family time and money and protect your privacy.