Most people instinctively know they should try to avoid probate. However, if you ask them the reason, they may not know. Thus, many people, experienced financial planners included harbor dangerous misconceptions about probate. These errors of focus can lead them to underestimate the challenges. For instance, some clients believe in their investment portfolio and financial plan. So, they fail to consider what would happen to their assets (and their family and charities they support) when they did.
Fix it and Forget it?
Others set up estate plans. However, they mistakenly adopt a “set it and forget it” attitude after the work is done. They forget to evaluate and refresh over time. Thus, the changing circumstances of life (and changes Congress and the state legislature make from time to time) can convert even an initially good plan into something that is dysfunctional or practically worthless. In some cases, sadly, people never discover that they didn’t properly protect their estates. Instead, their beneficiaries figure it out.
Estate Review
Fortunately, you can close existing gaps. Therefore, doing so guarantees that your wealth will transfer to heirs and beneficiaries without the need for probate. Find out if your estate needs this by reviewing existing trust or estate plans. Worst case scenario, you may discover the need to set up an entirely new structure.
Why You Should Avoid Probate
Cost
Court fees, attorney fees, executor fees, and the cost of probate itself often diminish the value of an estate. Therefore, the overall costs vary widely from state to state. But the average probate in the U.S. costs between 5 and 10 percent of the value of the estate. Sometimes, that figure climbs to 15 percent and beyond. The cost consideration should motivate you to evaluate your estate plan.
Delays
Even simple estates remain in probate for 6-12 months. This time period increases for large estates, estates in dispute, or among people who own property in more than one state. (This is an increasingly common occurrence in today’s mobile society). During this time, beneficiaries do not collect money or assets due to them. This lag often creates hardship. Of course, some states offer so-called “independent” administration or “summary” proceedings. These proceed quickly and largely solve delay-related issues. But, these types of probate still incur costs.
Privacy
Probate court proceedings are a matter of public record. Therefore, this means the personal financial information and identities of beneficiaries become available to any interested party. Most people would prefer to keep this information private.
Avoid Probate Always?
In certain rare instances, estates benefit by going through probate. For example, if someone sustained significant outstanding debt, probate offers creditors a very small window of time to make a claim against the estate. So, revocable living trusts may minimize the impact of probate on the bulk of the assets and the family. However, for the most part, you will benefit by avoiding probate.
Automatic Ownership Transfer Solutions
Depending on the specific asset or account, implement the following tools to keep each asset out of probate.
Estate Planning Terms
Transfer on Death (TOD)
This tool transfers the asset in-kind works well for real estate.
Payable on Death (POD)
This can work well for bank accounts.
Beneficiary Forms
Commonly applies to life insurance policies and certain annuities.
Joint Tenancy or Ownership
Works with real estate, bank accounts, and investment accounts
Outright Gifts
Works with virtually any asset. So, if you’ve already transferred something to your heirs before passing on, there is theoretically nothing to probate.
About Skvarna Law in Glendora and Upland, California
Skvarna Law Firm operates offices in Glendora and Upland, California. We provide legal services. We cover San Bernardino, Los Angeles, Orange, and Riverside Counties. This includes several cities. Upland, Ontario, Rancho Cucamonga, Fontana, Colton, Rialto, Chino, Chino Hills, Glendora, Claremont, Pomona, La Verne, Montclair, San Dimas, Azusa, Covina, West Covina, Diamond Bar, Walnut, La Puente, Corona, Norco & Mira Loma. Visit SkvarnaLaw.com to learn more.
