Although the primary function of your estate plan may be to ensure that your estate is distributed according to your wishes after you are gone, a comprehensive estate plan should also incorporate a variety of additional inter-related goals and objectives into the plan. Among the most popular of those additional goals is avoiding probate. Wilcox Attorneys, PA explains why avoiding probate is a smart estate planning goal.
What Is Probate?
Probate is the legal process that is typically required after the death of an individual. Probate serves several important purposes, including the identification and eventual distribution of the decedent’s estate assets, notification of creditors and payment of estate debts, and the payment of state and/or federal gift and estate taxes due from the estate. Probate also serves to authenticate, or challenge, a Last Will and Testament if one was left by the decedent.
Reasons to Try and Avoid Probate
Probate avoidance is a common estate planning goal for several reasons, including:
- Formal probate takes time. Probating even a relatively modest estate takes a considerable amount of time. In Arkansas, creditors have six months to file claims against the estate, meaning it takes at least seven to eight months to probate an estate. Complex estates, or estates that include litigation, can takes years to get through formal probate, often leaving loved ones without access to crucial financial resources.
- Probate is costly. Everyone involved in the process – lawyers, accountants, appraisers, Executor – is entitled to a fee for his/her services. There are also court costs and other fees and expenses incurred during the probate of an estate. All those costs are paid by the estate, which can significantly diminish the value of the estate that is ultimately passed down to loved ones.
- Court approval may be required. If the probate requires court supervision, a judge may need to approve just about everything, including the sale of assets, payment of debts, and the distribution of assets to beneficiaries. Understandably, many people would prefer not to have a judge interfere with their estate plans.
- Probate is public. All documents submitted to probate, including the decedent’s Will, become public records once filed with the court. That means that anyone can learn the terms of a Will filed for probate as well as the details of any litigation that occurs during the process.
Avoiding Probate – Tools and Strategies
There are several estate planning tools and strategies that can help decrease your estate’s exposure to probate, such as:
- Lifetime gifting. Assets gifted while you are alive are no longer part of your estate at the time of your death. Therefore, avoid probate.
- Using a trust to distribute your assets. Assets held in a trust bypass the probate process altogether. Many people choose to use a revocable living trust to hold most of their estate assets in conjunction with a Pour Over Will to ensure that any recently purchased or forgotten assets make it into the trust. This allows your estate assets to be distributed immediately after your death according to the trust terms you create.
- Using life insurance proceeds strategically. Proceeds from a life insurance policy also bypass probate. Life insurance proceeds can be strategically used to achieve a variety of goals within your estate plan.
- Titling jointly owned assets correctly. Assets owned jointly with rights of survivorship allow your interest in the asset to pass automatically and directly to the co-owner(s) without the need to pass through probate.
- Designating financial accounts as Payable on Death (POD) or Transfer on Death (TOD) accounts. When an account is designated as a POD or TOD account, you name a beneficiary who will automatically become the account owner upon your death without going through probate. The primary difference between a POD/TOD account and joint ownership is that the beneficiary of a POD/TOD account has no ownership interest in the account while you are alive.
Contact a Fayetteville Estate Planning Attorney
For additional information, please sign up for one of our FREE estate planning webinars. If you have additional questions or concerns about avoiding probate within your estate plan, contact an experienced Fayetteville estate planning attorney at Wilcox Attorneys, PA by calling 479-443-0062 to schedule your appointment today.
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