You may have heard about the horrors of probate, but truthfully, probate’s recent bad reputation is undeserved. If you bypass probate, your estate will go to your beneficiaries without any court proceeding, which may save a certain amount of time and expenses. Today however, there is usually little reason for most people to avoid probate. States continue to revise probate laws—making them more consumer friendly, particularly for small estates. For most modestly sized estates, the current probate process costs little. In fact, there are some good reasons to distribute your property via a will. Decisions are binding and have legal finality once your will is probated. Creditors who fail to file claims against your estate within a specific amount of time — usually six months after receiving notice — are out of luck.
However, some major drawbacks to probate do exist, including the time it can take to complete. The process averages six to nine months but may take up to two years or more for complex estates. This delay can tie up assets your family may need immediately. Also, for a larger estate, the cost may be as high as 5 percent of the estate’s value.
Arvest Trust and Wealth Management planning professionals can assist with estate planning and administration to help simplify the complex asset management process. If you feel the size and complexity of your estate warrants exploring alternatives to probate, you may want to consider one or more of the following options:
Transfer your assets to a revocable living trust
A trust is like a basket to hold your assets. A revocable living trust—also known as an inter vivos trust—is flexible enough to include almost any asset you own. While you are living, you can act as the trustee and add or remove property as you see fit. You can also terminate or amend the trust at any time. When you die, your successor trustee distributes the trust assets to the trust beneficiaries, according to the trust agreement. Trusts require a significant amount of paperwork, are costly to create and maintain, and usually require a lawyer to draw up the documents. Also, a revocable living trust does not shield your estate from your creditors, creditors of your estate, or estate taxes. The more you learn about the demanding duties associated with estate settlement, the more clearly you see why it can be so difficult to place the burden wholly on the shoulders of a spouse, adult child, relative, or an old friend. Trust Officers are experienced professionals who can oversee all the complex details of your estate.
Own property as joint tenancy with rights of survivorship
Assets owned as joint tenancy with rights of survivorship pass automatically to the surviving joint owner(s) at your death. To establish joint ownership, you may need to record new real estate deeds, titles for your car or boat, stock and bond certificates, statements of account for mutual funds, registration cards for your bank accounts, and other assets. This costs little and usually does not require a lawyer. Some drawbacks are the joint owner has immediate access to your property, and your joint owner’s creditors may reach the jointly held property.
Assets pass outside of probate if you establish payable-on-death provisions for your savings accounts and CDs. You can ask an Arvest Trust Officer to set up transfer-on-death provisions for brokerage accounts containing stocks, bonds, or mutual funds. Your retirement accounts, such as profit-sharing plans, 401(k)s, and IRAs can also pass along to designated beneficiaries. Finally, life insurance death proceeds will avoid probate, provided you name a beneficiary other than your estate.
Make lifetime gifts
Another way to avoid probate is to simply give away your property to your beneficiaries while you are living. Carefully planned gifting can also free those assets from gift and estate taxes. The following are usually nontaxable gifts:
- Gifts to your spouse
- Gifts to qualified charities
- Gifts totaling $15,000 (in 2020 or 2021) or less per person, per year ($30,000 in 2020 or 2021 if you and your spouse can split the gifts)
- Tuition payments on behalf of an individual directly to an educational institution
- Medical care expenses paid directly to the provider on behalf of an individual
Other ways to bypass or minimize probate
If your estate is small enough to meet state guidelines, your beneficiaries can simply claim your assets by presenting a notarized affidavit. About half of the states set a limit of $10,000 to $20,000 of the qualified estate value, while most other states allow as much as $100,000. You can generally deduct estate expenses from your qualified estate value, such as taxes, debts, loans, or family allowance payments, plus the value of any other assets that pass outside probate (e.g., a home jointly owned with a spouse). Real estate is usually disqualified from claims by affidavit. Therefore, your estate may qualify even if it is fairly large. Expect the process to take 30 to 45 days. Another method is for your executor to file for summary, or simplified probate. This streamlined process is generally a paper filing only, requiring no attorney. States vary widely regarding the allowable size of an estate for simplified probate.
Arvest Trust and Wealth Management’s team of experienced trust professionals can help ensure the smooth and timely settlement of your estate. Find a Trust Officer who can oversee the complex process and help relieve the stressful experience when administering your trust.