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Planning to Avoid or Minimize Probate

Depending on where you live and the complexity of your estate, probate is either a years-long bureaucratic nightmare or a process taking several months or a year to complete. Even for a straightforward estate, most people opt for an estate plan to avoid unnecessary delays in settling their estate and minimize assets that need to go through probate.

Estate Administration Requires Certain Steps

Everyone should have a last will and testament, regardless of the size of their estate. After death, the executor files the last will with the court, which issues letters testamentary, confirming the appointment of the executor and reviewing the legality of the last will. Once this happens, settling the estate may go forward.

If there is no last will, the court appoints an administrator to manage the estate, relying on the state’s laws to distribute property. There will always be more delays when there is no last will.

How can you avoid probate becoming time-consuming and costly?

Having a will is the first step in minimizing the time and expense of probate. A properly prepared last will moves through the probate process with less delay. The next step is to examine assets to consider whether they can be taken out of the estate, which could serve dual purposes of minimizing probate and estate taxes.

The most common approach to avoid leaving assets to a probate estate is using a fully funded revocable living trust. Once such a trust has been created and assets have been retitled in the trust, they are no longer owned by the grantor (i.e., the individual who created the trust) but by the trust. However, the creator of the revocable trust, as the name suggests, retains full authority to amend or revoke the trust.

When assets are appreciating rapidly, creating an irrevocable trust to remove them from the probate estate and avoid estate taxes can be a very savvy plan. The irrevocable trust removes the future appreciation of the assets from the estate of the trust creator. In addition, the assets may be protected from future creditors of the trust creator. With the present estate tax exemption of $12.92 million per taxpayer set to reset to around $7 million in 2026, irrevocable trust planning has received renewed interest by those seeking to minimize their estates subject to estate taxes.

A Qualified Personal Residence Trust (QPRT) is often used if the property being conveyed is a primary residence. The grantor transfers a residence into the trust, and the language of the trust must clearly state the grantor reserves the right to use and benefit from the property for a certain number of years. As long as all QPRT requirements are met, the value of the property for tax purposes is calculated based on the date the property was transferred to the trust, not when beneficiaries inherited it. The value of the property is further reduced by the grantor’s right to live in the property for the length of the trust.

Limited Liability Corporations Help Business Owners Remove Property from Probate

Business owners also use Limited Liability Corporations (LLCs) to remove property from their probate estates and for asset protection purposes. The LLC owners also can make lifetime gifts of their LLC interests to family members, while maintaining management control. The LLC members are protected from personal liability in case of litigation, debt, or other claims against the LLC itself. Finally, from an estate tax planning perspective, LLC interests transferred to family members may be discounted, sometimes as much as 40% of their market value. This is due to the lack of marketability of the interests themselves and the lack of management control enjoyed by the non-managing members.

These strategies should be created and executed long before they are needed, since it takes time to complete them. By taking action in advance, any questions of timing or intent are also reduced when the estate is eventually settled.