Probate refers to the legal protocol used in theU.S. to validate and settle decedent estates. There are two methods used which include 'testate' and 'intestate'. Testate is utilized when a person has executed a last will and testament, while intestate is used when a person does not write a Will.
Most people don't enjoy probate, but it can be made easier by writing a last will and engaging in estate planning. Wills supply important information about all aspects of closing the estate. They are also used to arrange guardianship and appoint estate agents to settle final affairs.
Not all estates have to be settled through probate court. People that transfer property to a revocable trust and those with small estates can bypass the probate process. The small estate exemption amount varies by state and ranges between $25,000 and $75,000.
The only way that small estates are allowed to avoid probate is when a last Will is presented to the court. As long as the Will is valid and heirs don't contest the contents, small estates can be settled after meeting requirements of the 45 day court confirmation period.
One estate planning strategy that can reduce the value of probated estates is setting up assignment of beneficiaries. This can be performed with bank accounts, retirement and investment accounts, titled property, savings bonds, and life insurance proceeds.
Designating beneficiaries is as simple as filling out a form where funds are held. Beneficiaries are not able to access funds until they follow specific protocol and obtain required claim forms. Beneficiaries of financial investment and retirement account funds can elect to transfer money into a newly formed account or accept lump sum cash.
Transferring investment funds allows beneficiaries to offset inheritance tax until funds are withdrawn. Beneficiaries might be subject to state and federal inheritance tax when accepting lump sum cash. It's always recommended to talk with an estate attorney to maximize inheritance cash and minimize taxes.
Another method to avoid probate is to gift property to heirs while living. This estate planning method is often used by the elderly and people that are diagnosed with terminal illness. Gifting real property, cash, and personal possessions ensures items are given to the people you want to receive them.
One little known fact about probate is less than 80 percent of beneficiaries actually receive the gifts left to them in decedent Wills. When estates undergo the probate process there is likelihood that estate assets will need to be sold to pay off outstanding debts, taxes, or estate settlement costs.
This problem is further escalated if heirs contest the Will. Contesting occurs when heirs feel they were entitled to property not gifted them in the last Will. The estate is responsible for defense legal fees and could be held accountable for heirs' legal fees if a judge rules in their favor.
Trusts are a good option for people with estates valued at $100,000 or more. When assets are placed into a trust the property is no longer part of the estate and avoids probate. Individuals need to appoint a Trustee to manage their estate. The legal title to the property is transferred to the Trustee and held in the trust until death.
Probate can turn into a time-consuming and expensive process, but can be avoided by entering into estate planning methods. Writing a Will does not eliminate the need for probate, but instead lessens complications for estate agents.
One of the simplest ways to protect estate assets is to work with estate attorneys, such as Craton and Switzer. Professionals can offer guidance about the most effective ways to protect valuable possessions and reduce estate and inheritance taxes.
Spending time developing a plan to lessen probate estate settlement is one of the greatest gifts anyone can leave behind. We encourage you to contact us to setup a consultation and invite you to peruse our probate article library to learn more about available strategies.