The kids are gone, it’s time to make a new financial plan
If you become an empty nester, you’ll want to reevaluate your money.
america today
Estate planners say one of the best gifts you can leave your heirs when you die is a plan to avoid probate.
Probate is a legal process that distributes a deceased person’s assets and settles debts. Many wealthy families go to great lengths to avoid it.
The probate process can take many months and cost thousands of dollars, depending on the size and complexity of the estate, state probate laws, and other factors.
“Probate is extremely expensive and something everyone wants to avoid,” said Craig Parker, assistant general counsel at Trust & Will. “It’s going to cost several thousand dollars. If you need legal help, it could be upwards of $10,000.”
In terms of time, “it can take months, even years, to get through probate court,” he said.
So here are some tips to avoid probate.
Aiming for “small real estate”
If the estate is small, probate court can generally be avoided.
The definition of “small” varies by state. According to Justia’s research, the criteria ranges from around $25,000 in assets to more than $100,000.
If you die with assets below the state’s small inheritance threshold, your survivors will likely be able to avoid full probate.
“If we can get it below that number, the process will be smooth and simple,” Parker said.
To settle a small estate, an eligible spouse, child, or other loved one typically completes a small estate affidavit.
“It’s like a one-page document that says, ‘I’m the guy who says I’m going to take care of this,'” says Brian Whitlock, a certified public accountant and estate planning attorney in Chicago.
Are you saying you’re worth more than $100,000?
Here are some ways to convert large assets into small real estate.
Specify beneficiary names
Your estate may include a variety of assets that will be in your name when you pass away.
However, if you designate a beneficiary, the assets will pass to someone else upon your death and will no longer be part of your estate.
You can designate beneficiaries for retirement accounts, insurance policies, brokerage accounts, savings accounts, checking accounts, and more. When you die, your assets pass to your beneficiaries.
“When you list beneficiaries, these are all called non-probate items,” said Brijinder Grewal, director of tax, trusts and estates at Charles Schwab.
If you do not designate a beneficiary, the assets in your name typically become part of your estate for probate purposes.
Estate planning experts recommend naming a contingent beneficiary in case the primary beneficiary dies. For example, a spouse, then children, or children and grandchildren. You want the living to receive your assets when you pass away.
Consider a living trust
A living trust is a legal document that manages your assets during your lifetime and determines what happens to them after your death.
Trusts can help you avoid probate because assets placed in a trust do not count toward your probate estate.
However, keep in mind that once you open a trust, you will need to move assets into the trust for it to be effective.
“Get bigger accounts and name them in the name of the trust,” Whitlock said.
Some assets, including IRAs, cannot be placed in a trust. Many other assets are also possible.
Grewal said one of the biggest mistakes in estate planning is establishing a trust and then neglecting to transfer assets into the trust. Even if you leave a large account in your name, probate may be triggered upon your death.
decide what to do with your home
For many middle-class families, there is no greater asset than the family home.
And there are ways to keep your home out of probate court, estate planners say.
One is a “transfer on death” deed, which changes ownership of your home upon your death and allows it to pass to your beneficiaries, avoiding probate. According to Trust and Will, many states allow transfer on death deeds.
Another option is to transfer your home into a trust. You can appoint yourself as a trustee to manage your home until you pass away and the home is passed on to a successor trustee.
Consider shared ownership, but with caution
Another way to avoid probate is to put another person’s name on the assets. In the case of a “joint tenancy”, when you die, your co-tenant usually becomes full owner of the property.
“On death, it automatically passes to the surviving tenant,” Whitlock said. “All they have to do is show the death certificate.”
However, joint tenancy can be a risky move while you are still alive. If co-owners are sued, divorced, or go bankrupt, joint assets can be dragged into legal quagmire.
“Co-tenancy can be dangerous,” Whitlock said.
Clean up your account
Experts say when planning your estate, take a close look at how your accounts are named.
If you have a living trust and want to avoid probate, make sure high-value accounts belong to that trust and not to you.
If your spouse or partner dies, be sure to remove their name from the account and transfer their assets into your own name or into the name of a trust.
Review the way you title your accounts every few years.
“The title itself is really a roadmap to real estate management,” said Michael Dearing, a partner at Mowery & Schoenfeld Wealth Management in Chicago. “And I would like to plan my route before I go through it.”
Communicate your estate plan
Perhaps the biggest step you can take to prepare your heirs when you pass away is to share your estate plan.
If you created a living trust and named a trustee and beneficiaries, let them know. If you plan to avoid probate court, explain it to your heirs.
“Keep a financial inventory for your children that shows where their accounts are and who their institutional contacts are,” Grewal says.
“Conversation is one of the most powerful estate planning tools,” he said.
