How to Minimize Probate CostsSubmitted by Fiduciary Financial Advisors - Clarity Capital Advisors on July 22nd, 2019
What is probate? After somebody dies, the legal process of probate transfers the decedent’s assets to his/her heirs. Probate occurs regardless of whether the decedent had a will. Since probate requires the time and effort of many people (e.g., judges, accountants, attorneys, etc.), it carries a cost that is by no means trivial, and it does vary among states. Any well thought out estate plan should seek to minimize this cost, and the best way to accomplish this is to avoid it wherever possible using any of the three techniques below.
First, the titling of an asset determines how it will transfer. Property held as a joint tenancy with rights of survivorship or as a tenancy by the entirety avoid the probate process because of the automatic retitling mechanism of the survivorship feature. Regarding community property, some states allow the addition of a right of survivorship to avoid probate. An estate planning attorney should be consulted.
The second probate avoidance tool is having a beneficiary on life insurance policies, annuities, IRA accounts, employer 401(k) plans, other retirement accounts, and individual taxable accounts with a transfer-on-death provision. We recommend that you review your beneficiaries on an annual basis. Even if the will says that a specific account should go to a particular heir, the beneficiary designation will likely override it. We know of many horror stories where assets were transferred to someone that the deceased did not intend. Don’t let that be you!
The third way to minimize probate is to place assets inside a living trust where the terms of the trust will govern their disposition upon death. Again, an estate planning attorney should be consulted.
Assets not included in any of the three categories above will pass according to the will. If you do not yet have a will, we recommend making it a priority.