A comprehensive estate plan should accomplish much more than just creating a road map for the distribution of your estate assets after you have passed away. In fact, a well thought out estate plan often includes numerous inter-related goals and objectives. Among the most common of those additional goals is probate avoidance. If probate avoidance is an important goal for you within your estate plan, you may wish to consider the following top ways to avoid probate.
Why Is Probate Avoidance Such a Common Goal?
Avoiding probate is a common estate planning goal for several reasons. First, if your estate goes through probate, the terms of your Will, and therefore the gifts you made in that Will, become public record. By avoiding probate you can keep details regarding the distribution of your estate private. Second, probate is time-consuming. In Maryland, creditors have six months from the date of the decedent’s death to file claims. Consequently, probating even a modest and uncomplicated estate typically takes a minimum of eight months. Often, the probate process can take a year or longer, meaning beneficiaries must often wait a long time to receive their intended gifts. Finally, probate can be expensive. Everyone involved in the probate of an estate, including the Executor/Personal Representative, attorneys, appraisers, real estate agents, and accountants are entitled to a fee for their services. The cost of probate can significantly diminish the value of the estate that is ultimately distributed to loved ones.
Ways to Avoid Probate
The good news is that there are several estate planning tools and strategies that you can make use of and implement when you create your estate plan that can dramatically help reduce your estate’s exposure to probate. Your estate may not be able to avoid probate completely, but with careful planning, your estate can likely avoid the time and expense of formal probate.
- Lifetime gifting. Only assets owned by you at the time of your death are potentially subject to going through probate. With that in mind, gifting assets while you are still alive instead of waiting until your death is an excellent probate avoidance strategy. In addition, there are often tax advantages to lifetime gifting that may further benefit your estate.
- Creating a trust. Assets held in a trust are non-probate assets and can be distributed immediately if the trust terms dictate. Most assets, including your home, can be held in a trust. Using a trust as your primary method for distribution of your estate assets can dramatically reduce the size and value of your probate estate.
- Designating accounts as POD or TOD accounts. The manner in which assets are titled can also be used to avoid probate. Real property, for example, can be held jointly with rights of survivorship, allowing your interest in the property to pass directly to the co-owner upon your death without first going through probate. Certain accounts can also be designated as “Payable on Death (POD)” or “Transfer on Death (TOD)” accounts which allow 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.
- Titling assets jointly with rights of survivorship. Certain types of jointly held property will bypass probate. The key is that the property must be held jointly with rights of survivorship. Your interest in jointly held property with rights of survivorship will pass directly to the co-owner upon your death.