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Avoiding Probate with Proper Estate Planning

Probate is the court process whereby a last will and testament is reviewed to ensure that it complies with the state’s laws. The court also approves the appointment of the executor. The will is then entered into the public record, making it available for review by anyone, from thieves to nosy family members.

In most jurisdictions, all beneficiaries and fiduciaries named in the will and any people who might be heirs by kinship if there was no last will must be notified about the last will being submitted to the court. If there is dissent, interested parties may challenge the last will during probate.

If there is no last will, the court appoints an administrator instead of an executor. The court is not obligated to name a family member, and the estate pays the administrator. The fee depends upon state law and the value of the estate.

Probate can take years if the estate is complicated or if there is no last will.

Assets Distributed Directly to Beneficiaries Are Not Part of the Probate Estate

Trusts are often used to protect assets from probate. When structured properly, assets in a trust are owned by the trust and managed by the trustee. When the grantor dies, the successor trustee takes control. Assets in trust for beneficiaries go directly to heirs and don’t go through probate. As a result, there’s no court involvement and no public record.

Another way to remove assets from the probate estate is to retitle them so they are owned by two people, referred to as “joint tenants with rights of survivorship.” When one of the owners dies, ownership passes to the surviving owner. However, if one of the joint owners has credit problems or goes through a divorce, the assets are vulnerable, so this must be done carefully. Finally, at the death of the last surviving owner, the assets are subject to probate due to the lack of a living owner.

Naming Beneficiaries on All and Any Assets

Assets with beneficiary designations pass directly to beneficiaries. This includes investment accounts, life insurance proceeds, retirement accounts and any assets featuring beneficiary designations. An estate plan review should always include checking and updating beneficiary designations to ensure that the right person is named, especially if the accounts have been owned for many years. Assets held as joint tenants with rights of survivorship may avoid probate upon the death of the last surviving owner if state law permits “transfer on death” or “pay on death” designations to be used on such assets as real estate, bank accounts, brokerage accounts and even motor vehicles.

Gifting While Living, Either to Charities or Individuals

If your financial situation allows, making gifts and donations while living removes assets from your probate estate. Donations to qualified charities can be made in many ways, from outright gifts to setting up a Charitable Remainder Trust or a Charitable Lead Trust.

Structured gifting is another way to remove assets from the probate estate. In 2024, any person may make gifts of up to $18,000 to as many people as they wish without being subject to gift tax or having the amount applied against their lifetime gift tax exemption. A married couple may gift up to $36,000 to anyone they wish.

With focused estate planning, it is possible to minimize the assets going through probate, make the distribution of assets more efficient, minimize tax liabilities and avoid family discord.