Probate is the legal process that ensues upon the death of an individual. When a person dies, the probate court determines the validity of their last will and transfers legal authority to the executor once approval has been granted. While most of the probate process is clerical in nature, there can be complications when it comes to disposing the testator's assets. When this occurs, the result can be a costly and time-consuming process that can delay the settlement of an estate for up to a year and cost thousands of dollars in court and attorney fees. Because of this, many people choose to avoid probate whenever possible.
There are several ways in which individuals can avoid probate depending on the size and complexity of the estate and how it is to be dispersed. For large estates, the best way to avoid probate is to establish the assets of the estate into a revocable living trust.
A living trust establishes a trustee to administer the estate, and this person is granted authority similar to a power of attorney to administer the estate after the individual's death. The living trust property is not part of the individual's estate, so therefore is not subject to probate. It is easily transferred afterward to the family and friends that it was intended to reach.
For smaller estates or bank accounts, pay-on-death accounts can be established by filling out a form that lists a beneficiary. After death, the money immediately transfers to that individual and bypasses probate. In some states, transfer-on-death forms allow vehicles and securities to be transferred to friends or family and some even allow real estate transfers with this method. Always check with a local attorney or your state offices for clarification of the law.
Another way to avoid probate is to establish joint ownership of the property in question. Family members or friends can be added onto bank accounts, real estate deeds, and vehicle titles to show joint ownership. When a person dies, the property is automatically transferred to the other owner listed on the property or account and probate is not needed.
Another method is to gift the property to another individual prior to death. If the property is not owned by the individual, it cannot be processed through probate.
Unless the property gift exceeds $5.25 million dollars, there is no federal gift tax due upon transfer.
It is important to understand that the process of probate is simply the attempt to ensure that all of a decedent's property has a proper place to be dispersed to. Most often, probate is a simple process of filing forms and paying some fees, but there remains a degree of uncertainty for many people because the process is left up to someone else, even if it is a judicial authority. For this reason, many people choose simple techniques that enable them to keep their property and assets within the family without having to deal with the legal hurdles that probate can bring.