MANAGING PROBATE WHEN SETTING UP YOUR ESTATE

What can you do to help your heirs?

For some estates, the probate process can be expensive. Probate can be expensive in terms of both time and money. The estate may take up to a year to settle, and attorney’s fees, appraiser’s fees, and court costs may consume up to 5% of a decedent’s assets. Probating an estate worth $400,000 could cost up to $20,000.

What can you do to make the transition as easy as possible for your heirs? There are a few steps that you can take to help you along the way:

Accounts held jointly

Property can be held jointly by married couples. Property that is jointly titled has a right of survivorship and is not subject to probate. When one spouse dies, it simply goes to the surviving spouse. Some states recognize tenancy by the entirety, in which married spouses each own an undivided interest in property with the right of survivorship (they need consent from the other spouse to transfer their ownership interest in the property). A few states permit community property with right of survivorship; assets titled in this manner also avoid probate.

Joint accounts

Joint accounts, however, may still face legal challenges. A potential heir to assets in a jointly held bank account may claim that the account is not a “true” joint account, but rather a “convenience account” in which a second account holder was added solely for financial convenience. In addition, a joint account arrangement with right of survivorship may differ from what is specified in an estate plan.

Some parents make their children joint owners of their property so that the property automatically passes to their children upon death. The problem is that, unlike joint marital property, ownership property titled jointly with a child is not exempt from the creditors of either the parent or the child during the parent’s life. A judgment against either the parent or the child may result in the asset being lost to creditors.

POD & TOD accounts.

Payable-on-death and transfer-on-death forms make it simple to transfer bank accounts and securities after death. If the original owner is still alive, the named beneficiary is not entitled to the account funds or the security. When the original owner dies, the named beneficiary only needs to bring their identification and valid proof of the original owner’s death to claim the assets or securities.

Using POD and TOD checking and savings accounts avoid probate, but they have disadvantages. First, the accounts are not protected from the lifetime creditors of the initial owner. Second, the immediate transfer on the initial owner’s death precludes using money in these accounts to pay death-related funeral, probate, and trust administration expenses. The POD/TOD beneficiary is not required to contribute their inherited money to share death-related expenses imposed on the family.

Gifts.

The IRS allows you to give up to $17,000 to as many different people as you want in 2022 before owing taxes. This reduces the size of your taxable estate. Gifts of more than $17,000 may be subject to federal gift tax (up to 40%) and will count against the lifetime gift tax exclusion. The current lifetime individual gift tax exemption is $12.04 million. The lifetime exemption for a married couple is now $24.12 million.

Revocable living trusts

 In some ways, these estate vehicles allow people to complete much of their probate while still alive. The grantor—the person who creates the trust—funds it with up to 100% of their assets while they are still alive and names beneficiaries. A “pour-over will” can be used to add subsequently accumulated assets to the trust at your death, but those assets “poured into” the trust will still be probated.

The trust owns assets that were previously owned by the grantor, but the grantor can still invest, spend, and manage these assets while they are alive. When the grantor dies, the trust becomes irrevocable, and its assets should be able to be distributed without having to be probated by a successor trustee. The distribution is private, as opposed to the completely public probate process, and it can save heirs money and time in court.

Using a trust involves a complex set of tax rules and regulations. Consider working with a professional who is familiar with the rules and regulations before proceeding with a trust.

Are there assets probate doesn’t touch?

Yes, there are all kinds of non-probate assets. A beneficiary designation is the common denominator of a non-probate asset, which allows these assets to pass to either a designated beneficiary or a joint tenant regardless of what a will states. Jointly owned assets with the right of survivorship are examples of common assets that will avoid probate.

Make sure to designate/update the beneficiaries of your retirement accounts

You are asked to name eventual beneficiaries when you open a retirement savings account. This specifies where your assets will go when you die. Beneficiary designations frequently take precedence over wills.

Consider regularly reviewing your beneficiary designations to see if they need to be updated.

If you are married and have a workplace retirement plan account, federal law makes your spouse the default beneficiary unless they decline in writing. Even if you name another person as the primary beneficiary, your spouse is automatically entitled to 50% of the account assets if you die.

It is important to investigate the best ways to provide protection for yourself during your lifetime, and your loved ones when you’re gone.  An estate plan customized to your specific requirements is the best way to secure this.  We serve the entire state of Florida so call us at (305) 962-5929 to schedule a consultation to discuss your estate planning needs.