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Avoiding Unnecessary Probate Costs

Avoiding probate in estate planning can significantly reduce costs associated with distributing a decedent's property, which can range from 3% to 7% of the estate's value. Tools such as trusts, payable-on-death registrations, and joint ownership can help bypass the probate process, allowing for a more efficient transfer of assets. While a will remains important, utilizing these strategies can lead to a more effective estate plan with minimized fees and taxes.

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17 views2 pages

Avoiding Unnecessary Probate Costs

Avoiding probate in estate planning can significantly reduce costs associated with distributing a decedent's property, which can range from 3% to 7% of the estate's value. Tools such as trusts, payable-on-death registrations, and joint ownership can help bypass the probate process, allowing for a more efficient transfer of assets. While a will remains important, utilizing these strategies can lead to a more effective estate plan with minimized fees and taxes.

Uploaded by

m.h.rasekh1996
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Avoiding Unnecessary Probate Costs

Avoiding probate in estate planning allows the decedent's property to be distributed to the
designated person at a designated time without substantial costs. Probate can easily cost between
3% to 7% of the estate's value.
Creating a trust allows an estate to avoid probate costs. However, a trust itself costs money, and it
takes time to set up and, if applicable, update.
KEY TAKEAWAYS
 Avoiding probate allows the distribution of the estate with fewer costs.
 The probate process involves proving the will is the last will.
 Transferring property to a trust is one way to avoid probate.
How Does Probate Work?
Probate is the legal process of proving the will is, in fact, the last will. The court also adjudicates
any claims against the estate. Probate usually occurs in the county and state where the deceased
permanently resided at the time of their death.
If there is no valid will (called intestacy), the title to the property, if there is one, will pass under
state intestacy laws to "heirs at law," normally giving one half to the surviving spouse and
dividing the remainder equally among the children. With or without a will, the property must go
through the probate proceedings.
Even if a person dies with a will, a court generally must allow others the opportunity to contest the
will. Creditors are allowed to step forward; the validity of the will can be scrutinized, and the
deceased's mental capacity at the time the will was drafted can be questioned.
These proceedings take time and money, and your heirs are the ones who will have to pay. Since
probate proceedings can take up to a year or two, the assets are typically "frozen" until the courts
decide on the distribution of the property.
Simplifying or Avoiding Probate Altogether
Even though probate takes place regardless of whether you made a will, you can look to other
tools that will help your inheritors.
Transfer Property to a Trust
Revocable living trusts or inter-vivos trusts were invented to help people bypass the probate
process. Unlike the property listed in your will, the property in a trust is not probated, so it passes
directly to your inheritors. You simply create a trust document and then transfer the property title
to the trust. Many people name themselves as the trustee to keep total control of the trust property.
A trust also allows you to name alternate beneficiaries. It does not require a waiting period after
death and is much harder to attack in court.
Set Up Payable-on-Death Registrations
Also known as transfer-on-death accounts, these allow you to name one or more beneficiaries of
the account to avoid the probate process. It's simple to create and usually free, and the beneficiary
can easily claim the money after the owner dies.
The ability to name a beneficiary, however, is a feature that you must add to the account, but most
banks, savings and loans, credit unions, and brokerage firms allow you to do so. It requires some
extra paperwork and time, so you'll need to be persistent and ask your institution for the required
forms.
Make Tax-Free Gifts
Making gifts helps you avoid probate for a very simple reason: you no longer own the property
when you die. For calendar year 2024, you can give your heirs up to $18,000 per person without
needing to report it to the IRS. Otherwise, you'll need to fill out Form 709. The only time you'll
need to pay taxes on a gift is if you've exceeded the lifetime gift tax exemption amount, which in
2024 is $13.61 million.1 (The 2023 gift tax exclusion figure is $17,000.)2 Giving before you die
helps lower your probate costs because, typically, the higher the monetary value of assets going
through probate, the higher the probate costs.
Revisit Beneficiary Designations
Dust off that old life insurance policy and make sure your beneficiaries are up to date. Too many
times, individuals forget to change their beneficiary after their second marriage, and then the ex-
spouse gets everything. Call your custodians and update the beneficiaries on all relevant accounts
—for example, individual retirement accounts (IRAs) , 401(k)s, life insurance policies,
and annuity contracts.
These types of accounts pass at your death by contractual beneficiary designation, meaning
whoever you name in your will is irrelevant to these accounts; beneficiary designation will take
precedence in court.
Use Joint Ownership
Joint tenancy with right of survivorship, tenancy by the entirety, and community property with
right of survivorship are the types of joint ownership that allow your property to bypass the
probate process. If you hold your stocks, vehicles, home, and bank accounts in joint ownership,
the title of the property automatically passes to the joint survivor upon your death.
What Is a Living Trust?
A living trust is a way to pass along assets during or after your lifetime. It is also known as an
inter vivos trust.3
What Is a Testamentary Trust?
A testamentary trust allows you to pass along assets after your death. It is typically created in a
will.4
What Is the Difference Between a Revocable and Irrevocable Trust?
A revocable trust can be destroyed. An irrevocable trust cannot.56
The Bottom Line
Although we've demonstrated some weaknesses of having a will as your sole estate planning tool,
don't think that you no longer need one. The guidelines above point out great tools to build a more
effective estate plan. However, you'll want to draft a will to cover property acquired shortly before
you die or anything that might have been overlooked.
A good estate plan typically distributes a decedent's property when and to whomever the person
desired, with a minimum amount of income, estate, and inheritance taxes, as well as attorney and
court fees. Avoiding probate is an important part of achieving these goals.

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