This is an article from Amen, Gantner & Capriano (https://www.yourestatematters.com/) in St. Louis, Missouri, that we thought others may find helpful.
When done properly, the art of estate planning should accomplish much more than just providing the framework for the distribution of your estate assets after your death. The additional estate planning goals you choose to include in your comprehensive estate plan will depend on your own unique needs and goals. One popular estate planning goal is probate avoidance. If you are unfamiliar with the term “probate”, it helps to first learn what happens during the probate of an estate. Then, you’ll understand why avoidance is such a common estate planning goal.
What Is Probate?
Over the course of your lifetime, you will acquire a number of assets that make up your “estate.” Your estate may include real or personal property as well as tangible and intangible assets. Upon your death, all of those estate assets potentially become part of the probate of your estate. Probate is the legal process that will ultimately transfer your estate assets to the new owners. If you leave behind a valid Last Will and Testament the individual named as your Executor will oversee the probate of your estate. If you die intestate or without a valid Will, any competent adult can volunteer or be appointed by the court to oversee the process.
Steps in the Probate Process
Understanding the steps involved in the probate of an estate is beneficial when explaining why avoiding probate is desirable. Not all estates will follow the exact same path through probate; however, the following are common steps in the probate of an estate:
- Identifying, locating and valuing estate assets –when someone passes away, all of his estate assets must be identified, located and secured as soon as possible. A date of death value for all assets must also be obtained. Assets must also be categorized as probate or non-probate assets because the non-probate assets bypass the probate process.
- Opening probate – an original copy of the decedent’s Last Will and Testament, along with a petition to open probate must be submitted to the appropriate probate court to get the probate process started.
- Notifying and Paying Creditors –creditors must be notified individually or via publication in a local newspaper. All claims filed by creditors must be evaluated by the Executor (or Personal Representative in an intestate estate) and approved or denied. If approved, the claim must be paid using available assets.
- Defending the Will – if anyone challenges the validity of the Will submitted to probate, the Executor must defend the Will throughout the ensuing litigation.
- Calculating and Paying Taxes – the estate is subject to state and/or federal gift and estate taxes which must be paid out of available estate funds before wrapping up probate.
- Distributing Assets –at the end of the probate process, the Executor/PR must effectuate the transfer of the remaining property to the intended beneficiaries and/or heirs of the estate.
As you can imagine, the probate of even a relatively modest estate can be a lengthy and costly endeavor. The key to diminishing (or even avoiding) the time and expense of probate is to reduce your probate estate. In other words, the fewer probate assets you own at the time of your death, the better. For example:
- Establish a trust. Assets held in a trust bypass probate. By creating a trust, you can transfer most probate assets into the trust and effectively turn them into non-probate assets. A trust can help with a number of other estate planning benefits as well, such as incapacity planning.
- Title property jointly with rights of survivorship. Your interest in your house, for example, could transfer directly to a spouse or adult child after your death if titled properly.
- Designate financial accounts as “payable on death (POD)” or “transfer on death (TOD).” Assets held in a financial account, when designated as POD, will automatically become the property of the designated beneficiary upon your death; however, the beneficiary has no legal rights to the assets while you are alive.
- Use your life insurance proceeds wisely. Life insurance proceeds are non-probate assets and therefore, are paid out directly to the beneficiary after your death. Consider using them to fund a funeral trust which then pays for your funeral.