Maybe you’ve heard that you should avoid probate but you don’t know exactly why. Below, learn more about what exactly probate is, why people take pains to avoid it, and how you can take steps in your own life to avoid probate, too. Your loved ones will appreciate your foresight!
What Is Probate, Anyway?
Probate is a court process that oversees how your estate (the money, possessions, and real estate you own at the time of your death) is distributed to your inheritors. The process involves establishing that your will, if you have one, is authentic and valid under the law. If you don’t have a will, the probate court determines who will receive your property using laws specific to your state, called “intestacy laws.” Probate proceedings also include identifying and appraising your property to see how much it is worth, giving formal notifications of your death to your relatives and creditors, and supervising the payment of any debts to creditors.
What Are the Benefits of Avoiding Probate?
People often make significant efforts during their lifetimes to avoid probate after their deaths. It’s not uncommon to spend quite a bit of time and money, or to hire a lawyer, in pursuit of probate avoidance. Common reasons for wanting to avoid the probate process include the following:
Saving money. The cost of probate varies significantly from state to state, but can include attorney fees, executor fees (paid to the person named in your will or appointed by the court to manage your estate during probate proceedings), court fees, and more. Some states even allow both lawyers and executors to charge a percentage of the estate as their fee.
Example: In California, either a lawyer or executor alone can collect 4% of the first $100,000 of the estate, 3% of the next $100,000, 2% of the next $800,000, and so on, regardless of the amount of work or time spent on their tasks. (Cal. Prob. Code § 10810.) For an estate worth $600,000, if both a lawyer and an executor were to take the maximum allowed amount of $15,000, they would take a rather significant $30,000 of the estate before it was passed on to the inheritors.
Note that executors, who are often family members, frequently choose not to take fees. On the other hand, in states such as California, executors and lawyers who perform “extraordinary services” during the probate proceedings—such as executors who sell or lease real property or prepare tax returns, or lawyers who must defend the estate from litigation—can ask the court for additional “extraordinary compensation” on top of the percentages set by the probate code. (Cal. Probate Code § 10811.)
Saving time. How long probate proceedings take will depend on your state and the complexity of your circumstances, but a typical range is six to 18 months. In other words, an entire year could easily pass before your inheritors have full access to their inheritance. As you might imagine, this delay can have significant consequences—for example, when your child needs that inheritance to pay for college tuition or your spouse needs the funds to move to another home.
Maintaining privacy. Probate is a public proceeding. If you have a will, it becomes part of the public record, meaning anyone can obtain a copy of your will. These days, electronic records are often kept online, making it even easier for people to access information about your will and the financial details of your estate. This public access might be distasteful to some. It can also result in scams targeting your loved ones.
Avoiding out-of-state probate proceedings. If you own property in another state, your estate might get tied up in two (or more) probate proceedings—costing even more money, time, and headaches. So beware that if you live in one state but own a house in another, you likely have added reason to take steps to avoid probate.
Common Methods for Avoiding Probate
If you’ve decided that you would like to avoid probate, here are some ways to do so. Some of these measures, such as naming beneficiaries on your bank and retirement accounts, are extremely easy to take; you can accomplish them in mere minutes. Others, such as creating a living trust, require a larger investment of time if not money. A few of the options below are available only in certain states.
- Living trust. Make a simple revocable living trust instead of (or in addition to) a will. Transfer property to your living trust, and the property will be protected from probate.
- Beneficiaries for bank accounts. Name beneficiaries for your payable-on-death (POD) bank accounts. Your account will pass directly to your beneficiaries without entering probate.
- Beneficiaries for stocks and bonds. Name beneficiaries for your stocks, bonds, and brokerage accounts so that these accounts are transferred free of probate.
- Beneficiaries for retirement accounts. Name beneficiaries for your retirement accounts to ensure the accounts are protected from probate. (But, if you are married, beware of special rules limiting whom you can name as beneficiaries.)
- Beneficiaries for life insurance proceeds. Name beneficiaries for your life insurance policies so that the payouts will be transferred directly to them without going through probate.
- TOD vehicle registration and deeds. Use transfer-on-death (TOD) documents for real estate and vehicles when allowed by your state. These documents transfer your car or home to your beneficiaries upon your death while bypassing probate.
- Certain types of joint ownership. If you co-own property, look into whether your specific type of co-ownership avoids probate, or whether you can take steps to co-own your property in a way that does.
- Small estates. Minimize probate assets so that your estate slides in under the threshold amount that triggers probate proceedings.
For more details on each of these measures, see Top 7 Ways to Avoid Probate.