I hear many financial planners and estate planning attorneys on talk radio screaming about the need to avoid probate at all costs. The truth is that sometimes it can be beneficial, but it can also cause all sorts of problems.
Probate is the process by which a person’s assets are transferred to his next of kin after that person dies. A common misconception is that having a Will avoids probate. This is not true – having a will facilitates the probate process and can minimize the hassles involved.
There are many ways to avoid probate including retitling of assets so that property that a beneficiary or surviving joint owner is named on all bank accounts, retirement assets, deeds, life insurance contracts, etc. A person can also set up a life estate, a Revocable Living Trust or engage in a planned gifting strategy to gift away all their assets before they die.
Sometimes the cost of setting up a probate avoidance strategy can outweigh the benefits of setting it up. However, avoiding probate can be a valuable estate planning technique in any of the following situations:
- If you live in a state where it is cost effective to avoid probate.
- If you have real estate or business interests in multiple states. Your heirs will need to conduct a probate proceeding in each of those states.
- If your family requires immediate access to money and other assets after you pass. If you have to go through the probate process, sometimes it may take a while to have access to the funds.
- If you want privacy. Wills are public documents.
It is important to note that avoiding probate DOES NOT avoid the estate tax or the inheritance tax. Tax planning is a separate and distinct strategy that must planned for.