Probate Pitfalls and How to Avoid Them

Probate Pitfalls and How to Avoid Them

Probate is the process by which the estate of a deceased person or decedent is inventoried, processed and distributed to the heirs and beneficiaries.  The probate process is necessary to determine who gets what after a loved one dies, whether he or she had a will or not.  However, the probate process can last anywhere from a few months to several years and incur substantial fees in the process. 

Many people want to find ways to avoid the pitfalls and expenses of the probate process. 

One way to do this is to set up a "living trust".  A living trust is where the owner of the property transfers ownership of it to a separate trust account that he or she controls.  An "irrevocable trust" is one where changes cannot be made after the trust is originally set up; a "revocable trust" is the opposite, where changes in the trust can be made at any time.  Upon the owner's death, the person or persons named as beneficiaries of the trust will automatically retain ownership of the trust and therefore the property in it, without having to go through the probate process.  Another advantage to setting up a living trust is that while probate is a very public process, with every detail going before the court and becoming public record, the living trust preserves the interested parties' privacy.  Living trusts also can benefit the heirs by allowing for the avoidance of some of the estate taxes associated with probate.

Some other ways to avoid the probate process are life insurance policies, savings accounts, and joint tenancies with the right of survivorship.  Avoiding probate does not always mean that the beneficiary can avoid the estate taxes associated with inheritance, because many of the laws governing estate and inheritance taxes have been changed to include in the definition of taxable estate, any property held in a living trust, any life insurance policies that are "payable upon death" or "transferable upon death," and most other property that has been set up to transfer automatically upon the death of the owner.  The term "inter vivos" means that trusts can sometimes avoid estate taxes, if they are set up correctly, but it is not necessarily talking about avoiding probate.

The general rule to avoiding the inheritance and estate taxes associated with probate is to set it up in an irrevocable trust or to give it away to a qualifying charity.  However, there is one more way to avoid some of the taxes.  If the owner of the property is married and sets up his or her property in a "credit shelter trust" or "AB trust," the property is jointly owned by the married couple.  Upon the death of one spouse, the ownership of the property automatically passes from both spouses to the surviving spouse, without having to go through probate.  This type of trust can allow up to double the entire estate to pass to the heirs and beneficiaries without going through probate and having to pay estate taxes.  These types of trust accounts may or may not reduce or eliminate the amount of estate tax paid by the heirs or beneficiaries.

The best advice if you are wanting to explore ways to possibly avoid the probate process upon your death is to consult a estate planning attorney or other professional trained to set up these types of trusts. 

The process of probate can be tricky and so can the process of avoiding it.