You have probably heard the word “probate,” with its negative connotation, and wondered, “What is probate, and do I need to worry about it?”
Simply put, probate, also called “estate administration,” is the process by which a deceased person’s will and property are administered by the court. A probate case may be required even if the deceased person, called the “decedent,” died without a will, or “intestate.” Probate includes the appointment of a personal representative (PR), also called the “executor” in some states, and the issuance of “letters testamentary,” which give the PR authority to act on behalf of the estate. Probate Court records are public. Anyone can access those records and obtain sensitive information about the estate.
There are various vehicles by which one may transfer assets as part of your estate planning in order to avoid probate. This can save loved ones the time, expense and hassle of dealing with the courts and also maintain the privacy of the estate.
There are five general ways to pass on your property as part of your overall estate planning:
- Joint Property Ownership – Provides “right of survivorship” meaning upon death, the deceased joint owner no longer owns the property and it passes to the living joint owner.
- Death Beneficiaries – Upon your death, these assets become the property of whomever you designate as the beneficiary. Therefore, they are no longer a part of your estate and avoid probate entirely.
- Revocable Living Trusts – The transfer of property to a trustee to hold for your benefit. The property within the trust is generally not considered part of your probate estate and can normally avoid the probate process entirely.
- Gifts During Life – Gift an asset before your die such as outright or via an Irrevocable Trust. The property gifted is generally not considered part of your probate estate and can normally avoid the probate process entirely.
- Selling During Life – Sell an asset before you die which could include installment sales and self-cancelling installment notes. The property sold is generally not considered part of your probate estate and can normally avoid the probate process entirely.
Under each of these five options, there are specific income tax as well as transfer taxes (gift/estate/generation skipping) which need to be considered. The above is for general discussion purposes only. You should consult an attorney before implementing any estate planning strategies.
Please contact me to answer any questions you may have regarding probate or estate planning.