When you create or update your estate plan, you will likely consider several goals. Along with primary goals such as the distribution of your assets after your death and planning for the possibility of your incapacity, you should also include important secondary goals. Probate avoidance is one of those important secondary goals. In this article, I help you understand why probate avoidance should be one of your estate planning goals.
Probate Avoidance Basics
At the time of your death, you will leave behind an estate that consists of all the assets you owned or had an ownership interest in at the time of your death. This includes both real and personal property as well as both tangible and intangible assets. Probate is the legal process that many of those assets must go through before eventually being transferred to the intended beneficiaries or legal heirs of your estate.
Why Is Avoiding Probate an Important Goal?
There are several reasons why tools and strategies aimed at avoiding probate should be included in your estate plan.
First, formal probate is a time-consuming process. Even without unexpected delays or litigation, an estate will still take months (sometimes years) to get through probate. In Maryland, creditors have 2-6 months (depending on the type of notice used) to file claims against the estate. Those claims then need to be reviewed and approved or denied. Approved claims must be paid according to priority determined by law. If the estate becomes involved in litigation, or there is other wise held up, probate can easily take over a year for even a modest estate.
Second, probate can be expensive. Along with court costs and related out-of-pocket expenses, everyone involved in the probate of an estate is entitled to a fee. This includes not only your Executor, or Personal Representative as it’s called in Maryland, but attorneys, accountants, financial advisors, appraisers, real estate agents, and other professionals retained to help probate the estate. All these expenses are paid out of estate assets, ultimately diminishing the value of the estate passed down to beneficiaries and/or heirs at the end of the process.
Finally, going through formal probate can be stressful for surviving loved ones. Along with trying to navigate the grieving process, they may also need to focus on the legal and practical steps involved in probating your estate. The longer it takes to get through probate, the harder it can be for loved ones to manage the emotions that accompany the grieving process. Additionally, probate is a public proceeding. As a result, literally anyone can easily find out what assets where in the probate estate and who will be the beneficiaries of those assets.
How Can My Estate Avoid Probate?
It is not always possible to completely avoid probate; however, working with your estate planning attorney to incorporate probate avoidance tools and strategies into your estate plan will go a long way toward decreasing your estate’s exposure to probate if not completely eliminating the need for probate. Here are a few tools which can help you and your loved ones avoid the probate process:
- Lifetime gifting. Gifting assets while you are alive instead of waiting until after you are gone reduces the value of assets left to probate after your death. That, in turn, reduces the likelihood that your estate will require formal probate. Lifetime gifting can also provide some significant tax benefits. However, it is important to recognize and understand that lifetime gifting could have unintended tax consequences and cost your heirs the benefits of a step up in basis.
- Establishing a trust to distribute assets. Assets held in a trust are considered non-probate assets, meaning they bypass probate altogether and can be distributed directly to the named beneficiaries. Moreover, most assets can be held in a trust, including your home.
- Strategically titling assets. Titling assets (such as your home) jointly with rights of survivorship means that your interest in the property will pass directly to the co-owner upon your death instead of becoming part of your probate estate. However, this method can be associated with risks and unintended consequences.
- Designating accounts as POD or TOD accounts. How assets are titled can be used to avoid probate. For example, financial accounts can be designated as “Payable on Death (POD)” or “Transfer on Death (TOD)” accounts which allows you to designate a beneficiary who will automatically become the owner of the assets held in the account upon your death. Unlike jointly held assets, however, a beneficiary of a POD or TOD account has no ownership interest in the asset while you are alive. This alternative may also be associated with risks and unintended consequences.
Probate Avoidance: Learn More By Contacting Our Team
It is important to know which option is best for you and for the particular asset you want to keep out of the probate process in order to avoid certain risks and unintended consequences. If you are looking to avoid probate, it is important to consult with an informed attorney who can help you find the right solution. For more information, or if you have additional questions or concerns about how to include probate avoidance tools and strategies in your estate plan, contact my experienced team to get the most updated information by calling 410-654-3850 to schedule an appointment.
- The Lessons from Lisa Marie - April 11, 2023
- The Not-So Transparent Corporate Transparency Act - April 4, 2023
- What Happens When You Don’t Trust Your Trustee – Part II - March 28, 2023
