Planning ahead for what will happen to your property when you are no longer around can help save a significant amount of time and money for your heirs. Smart estate planning can also ensure a speedy transfer of your assets according to your wishes.
When you pass away, your possessions and property go through a process that includes the settlement and distribution of your assets in compliance with the terms of your will. This is the probate litigation process and it is managed by your state’s probate court. If you have personal properties and real estate investments located outside the state where you live, separate ancillary proceedings are initiated in those states.
Nonprobate assets are ones that are jointly owned by you and your spouse (for example a bank account, retirement benefits, life insurance proceeds, or a jointly owned property).
While most Americans believe that having a will is enough to avoid probate, in reality that’s not the case. All the assets that you own individually and intend to pass on to your desired beneficiaries are subject to probate.
Unfortunately, the probate process is tedious and time-consuming. Rules vary by state (some allow an expedited process), but probates are generally a slow procedure. They can take as little as three months or up to three years to resolve, depending on your state and the size of your estate. This is a very long time for your family to wait, especially if they need the income from your estate. The process can become even more cumbersome and difficult if your inheritors are contesting the will.
What’s more, probate is a costly affair: There are litigation costs, attorney charges, newspaper publication fees for publishing the estate appointments, and bond premiums, which are charged for posting a bond when minor beneficiaries are involved. The larger the estate, the greater the potential expense. Even a small estate can become costly in probate if the deceased person owned properties in multiple states.
Additionally, since it’s a public process, probate involves extensive documentation and paperwork, which eventually becomes a part of public records. If you or your family has any privacy concerns, probate can invite unwanted attention.
Fortunately, there are steps you can take today to help ensure that your estate avoids the probate process. Keep in mind that tax treatment varies according to how you hold assets; consider seeking advice from an attorney or fee-only financial planner about the tax implications of certain tactics for your heirs.
Creating a living trust allows your trustee to transfer your property and possessions to your family members without undergoing probate. By using a trust, you can facilitate timely distribution of assets and help your family save on inheritance fees. Simply create a living trust that specifies your inheritors, and your property will be distributed quickly and efficiently. You can work with an attorney for help setting up a trust.
All you need to do is fill out a form indicating a chosen beneficiary. When you die, all your money is directly transferred to your desired beneficiary without undergoing probate. The same process is applicable to security and vehicle registrations. Certain states also allow you to create a deed that facilitates easy transfer on death.
Jointly owned property automatically passes to the surviving owner. It is an easy way to avoid probate and does not require any additional paperwork. Joint ownership can be established through one of these types of ownership:
If joint ownership is not established before one owner’s death, it can be established by filing a copy of the death certificate of the joint tenant along with an affidavit with the appropriate agency.
The federal government taxes only those estates that are worth $5.45 million or more, so if you have a large estate but give away enough assets ahead of time, your estate might escape those taxes. If you gift property when you are alive, it does not undergo probate when you die. The higher the market value of your assets, the greater the cost of your probate process.
But be aware that there are limitations and tax consequences when you gift assets. You can have your gifts structured by a legal specialist for tax-free treatment.
Many states have simplified their estate-planning procedures for certain property types. You may be able to use or one more of these provisions to avoid a complicated probate, depending on the size of your estate, the type of property and your state’s estate laws.
Even if you don’t have a large estate, the process of transferring your assets can be costly and time-consuming. Taking the appropriate estate-planning steps for your situation today can help simplify the distribution of your property for your heirs. Consult a financial advisor to determine the best option for your specific situation.Source: http://www.nasdaq.com/article/5-smart-estateplanning-steps-to-avoid-probate-cm577985