Five ways to minimize the time and cost of probate

There are some relatively simple things everyone can do to minimize the the time and expense of probate. Probate is the legal process of transferring property to a person's heirs either with or without a Will. Most of the expense incurred in a probate action and much of the time the action may take are directly related to the planning or lack of planning done before death.

It is important to understand that avoiding probate may or may not avoid tax liability. It is very important to consult not only legal counsel but also competent accounting counsel before making any of the changes outlined in this post.

1. The easiest way to avoid probate is to die without any property. Although this statement may seem somewhat flippant, it is entirely possible to transfer all of your property out of your name either into a trust or through gifts to your children or other heirs. Property held in a trust in not normally part of the probated estate. Likewise, any property gifted to others during your lifetime is also not part of your estate upon your death. Although there are limitations, particularly tax consequences of transfers or gifts, with the proper planning you can avoid probate altogether.

2. Hold property in joint ownership with survivorship rights. Real property can be held as joint tenants with a right of survivorship. Likewise, in a community property state like Arizona, property can be held as community property with a right of survivorship. Property held with a right of survivorship does not pass to the recipient as part of probated estate.

3. Hold bank accounts as payable on death (POD) accounts. Some banks will allow an account to be held by two or more people with a designation that any amount left in the account will be payable upon death. These funds are not considered part of the probate estate.

4. Purchase life insurance with heirs as beneficiaries. Life insurance proceed pass directly to the beneficiary and are not considered part of the probate estate.

5. Preserve the stories and give items of sentimental value to your heirs before your death. Sometimes children and grandchildren have no idea of the significance of a family heirloom. If you have any items of particular sentimental value consider gifting those items to your heirs before you pass away. The gift will be much more meaningful if the recipient knows the story behind the gift.

There are more things to you can do to minimize the time and expense of a probate and they will be covered in future posts.

What about family heirlooms?

Michelle loved her grandmother's antique table. It had been in the family forever and she associated it with the wonderful family gatherings during the holidays. Since Michelle had moved to her house in Sun City, she made the table the centerpiece of her remodeled dining area. Unfortunately, Michelle's two sons lived in small apartments. They both moved frequently with their work and had yet to settle down and purchase homes. Her daughter, on the the other hand, had married well and lived in a lovely house in Iowa. If Michelle died, what would happen to the table?

Items of personal property, like antiques or collectibles, usually are lumped together in an estate. If there is not enough money in estate to pay the bills, the personal property may be sold to pay the estate debts. If Michelle died without a will, likely her estate would be split equally between the three children. If the children could not agree on a distribution of the estate assets, all of the assets might end up being sold, even the antique table, to create cash for a distribution to the heirs.

If Michelle is concerned about preserving specific items in her family, she will need a Will and should give a specific bequest (gift) to the person designated to receive the property, in this case, give the table to her daughter. Some states, like Arizona, allow a person to make a list of personal property and attach it to a Will, designating the people who are to receive specific items.

Wills save a lot of grief.

According to the U.S. Census Bureau:

• In 2001, 72.5 million children under 18 lived in households.
The majority of these children (51.1 million) lived with two parents. Three percent (2.1 million) of all children lived with two parents who were not married to each other.
• Among the 18.5 million children living with only one unmarried
parent, 2.2 million lived with their father.
• Of the 1.4 million children living in households with at least one adoptive parent, 44 percent lived with two adoptive parents.
• Fifteen percent of children (10.6 million) lived in blended families. About half of these children, 5.1 million, lived with at least one stepparent.
• 15.1 million children lived in households with no brothers or sisters present (21 percent).
• 6.2 million children lived with at least one grandparent, and 1.4 million of these children had no parent present.

In each and every case, the welfare and well being of these children, especially those not living with both parents, depends to a large extent on the health and ability of the custodial person. Too many times, in the event of the death or disability of the custodial person, the child's future is left up to chance and the government.

In all of these situations, the people caring for the child could better provide for that child's security through a Will or Trust. Even a simple Will would give the child a chance for some inheritance, especially in those situations where the child is being raised by a relative, such as a grandparent. If the grandparent dies without a Will, the child does not automatically inherit anything. All of the grandparents' estate may go to the absent parent of the child, who did not provide for the child in the first instance.

More Language of Probate

When you are faced with the death of a loved one, it is extremely helpful to know the language of probate. You may need to talk to lawyers, or at a minimum with mortuary representatives, many of the issues that may arise involve decisions about documents and events that have technical names. Even if a probate is not necessary, it may still be helpful to speak the language.

In the past post, I listed a few of the basic terms. Here are some additional terms that help to clarify the probate process:

Inventory
The assets of deceased person at the time of his or her death. Usually, if a probate is filed with the court, the Personal Representative must file an inventory listing the assets of the estate. This is one reason why some people wish to avoid the probate process entirely. See Appraisal

Appraisal
The document containing the inventory of the estate also contains a valuation of the property listed. This "Inventory and Appraisal" document is provide to each of the heirs as well as the court.

Accounting
A report of the income and expenditures of the transactions occurring during the time the probate is open. Some situations do not require an accounting unless there is a formal probate.

Informal Probate
Under some state's laws a less involved way of probating the estate where formal hearings before the Court are not required.

Formal Probate
Where there is a dispute or potential dispute about a Will or when the Will is missing or never done, the Court requires a more extensive proceeding called a formal probate. Appointment of the personal representative can only be accomplished after a hearing for which all of the heirs have been given notice.

Holographic Will
A will written out in the handwriting of the person making the will. Each state has its own requirements as to whether or not such a handwritten will is valid.

Testator/Testatrix
The person who makes a will.

We will visit this topic again in the future. If you need more information please go to the Jackson White Website.