Probate can be expensive, time consuming, public, and frustrating for your heirs. Should you create a will? A trust? What is the difference? Is it worth the effort to avoid probate? In this episode I’m going to discuss 5 specific strategies to avoid probate. This is part of my ongoing commitment to assist you in getting educated about retirement and helping you making better decisions in all 8 areas of retirement planning.

I am not here as an attorney but rather am here to educate you on high level aspects of estate planning. I recommend working with competent legal professionals that can assist you in making estate planning decisions for your specific needs. My goal is to put these strategies on your radar so you can plan your retirement and estate effectively.

WHAT IS PROBATE

Probate is the legal way a person’s estate is handled after they pass away. It’s purpose is to make sure that assets and possessions are given to the correct people. It also ensures that any debts and taxes are paid.  

A will does not help you avoid probate, but rather gives specific instructions upon your passing. The probate process then reviews a will and validates it. Then an executor is appointed to distribute your estate to the beneficiaries of your choosing. 

If no will exists, your estate will be handled through the default intestate laws. Be aware that your assets may not be distributed as you would have designated.

As a side note, there may be small estate guidelines in your state that minimize the probate process. In Utah, this is for estates with less than $100,000 and no real property.

3 REASONS TO AVOID PROBATE?

Time - The probate process can last anywhere from approximately 4 months to 2 years, depending on the complexity of your estate. Many factors can influence the timeline of settling your estate.

Is there a will?

The number of beneficiaries

Is the will being disputed? Do the beneficiaries agree?

Does the estate have debt?

Is the estate taxable?

How complicated are the assets?

Expense - Probate can cost 3-7% of a person’s total assets. On a million dollar estate that could be $30,000 if at 3%, $70,000 at 7%. With proactive planning, these costs can often be reduced.

Lack of Privacy - The probate process is a public process, meaning that estate matters can be discovered by your neighbors or others. If someone showed up at the courthouse, they could view the entire record.

The probate process can be different across the United States, so researching your local laws and working with a competent attorney can help you make wise estate planning decisions. 

5 STRATEGIES TO AVOID PROBATE

While every situation is unique, many retirees who have accumulated assets can benefit from minimizing the impact of probate. When you avoid probate, it can often be less expensive, less time-consuming, and private. Your neighbor won’t know the amount of your assets or to whom you gave them.

#1 - TOD DESIGNATION

A TOD designation stands for Transfer on Death. TODs are generally used for non-qualified bank and brokerage accounts. This designation transfers the ownership of an asset to a beneficiary.

For example, in the last year I worked with a new client who was single and had a large amount of money in her bank account. If she were to pass away without a TOD designation, that money would be included in the probate process. On the other hand, if she were to go to her bank and add a TOD designation, that money would go directly to the beneficiaries she selects. This same principle applies to a taxable brokerage account.

#2 - BENEFICIARY DESIGNATIONS

When you set up your 401(k), 403(b), or IRA, you’ll select beneficiaries. These accounts are a form of TOD and will simply pass to the beneficiaries you selected without going through probate.

One common mistake is not updating your beneficiaries as life events occur. It’s important to understand that the beneficiary designation is a contract that supersedes a will. For example,