We all want to pass on a little something to our kids or other loved ones, saving every now and then to make life a little easier for those we care about.
Avoid Costly Probate Fees
But did you know that millions of dollars are spent on increasing court and lawyer fees associated with probate proceedings every year?
The last thing you want is to give a large portion of your hard-earned and long-term savings to the government in the form of probate fees. Nor do you want your loved ones to wait months or years just to receive a penny from what’s originally saved for them.
If you don’t want these to happen, then you need to know how to avoid the costly probate fees.
But first…
What Is A Probate?
Probate is a legal procedure dealing with the distribution of an individual’s property upon death. The court, usually a specialized probate court, will appoint someone to make sure that all debts are cleared and that the remaining property and assets are transferred to the appropriate parties, according to their will.
Now, if there’s no will, the specific probate law in that state will oversee the property distribution to the next of kin.
Breakdown of Common Probate Fees
The biggest drawback to probate is the fees. The more it costs, the less inheritance the beneficiaries will receive.
Since the probate court process isn’t standardized, the average cost of probate can vary on several factors, such as the state you live in or your estate’s size. To get a general idea of what the costs may be, try using a probate calculator.
Still, some costs are fairly consistent in a probate process.
Probate Lawyer and Accounting Fees
In some states, hiring a probate lawyer is required by the law, but most don’t mandate this. A probate lawyer, however, can help you in navigating the whole process.
While you won’t have to worry about paying lawyer and accounting fees right from your pocket, they’re paid out from your estate, reducing the overall value of your inheritance.
- Court Fees
Expect fees every time you go to court. Since there are no standardized probate court fees, the amount will depend on your state and county filing fees and other factors. Some of the fees you need to pay in a court include filing, certificate, and beneficiaries and heirs notifications.
- Bond Fees
This may not always be required, and if the will directly state that it’s not needed, the court will allow you to forgo bonds. However, if a bond is required, the cost will be determined by the estimated size of your estate.
- Executor Fees
Executors also charge a few in reimbursing their expenses, including the cost of travel, tax preparation, supplies bought, or anything else that’s needed to settle an estate.
- Miscellaneous Fees
There are other fees you should consider that are related to probate. These include postage, appraisal, notary, business valuation, estate sale preparation, storage, and more.
Avoiding Probate Fees: Four Methods To Try
Here’s a list of methods you can try to avoid probate fees:
Create a Living Trust
Living trust was invented to help people in bypassing the costly and time-consuming probate process. This is the best and most straightforward choice, especially for larger estates or those with numerous beneficiaries.
It’s merely an alternative to the last will. However, unlike a will that simply distributes your properties and assets upon death, a living trust will place your property and assets ‘in trust,’ managed by a trustee for the benefit of the beneficiaries. This allows you to avoid the probate process entirely since your assets are already distributed to a trust.
Lawyer’s fees for setting up a living trust are more expensive than drafting a last will and testament. But, depending on the complexity and value of your property, the legal fees in setting up a trust can be significantly cheaper than the cost of probate.
Giving Gifts
Another way to avoid probate is to transfer your assets before you die. While you can’t give away all of your property since you may need to use some of it, it can be a part of your overall estate plan.
You can give your beneficiaries and heirs a specific amount without a gift tax penalty. This should help lower your probate costs since you’re lowering the monetary value of your assets going through probate, resulting in reduced probate costs.
The main disadvantage of a gift is that you don’t have the right to use the property. Also, if you want to gift a share of your estate and don’t state it clearly in writing, the recipient might be able to claim a share of your property which needs to be probated. Plus, if a gift exceeds the specific amount set, a federal gift tax is applied.
Joint Ownership
Making your partner or someone else a joint owner helps avoid probate upon your death. If one owner dies, the title will be automatically passed to the remaining owner.
In general, there are three kinds of joint ownership:
- Joint Tenancy with Right of Survivorship: The property is passed on to the other owner upon the other’s death.
- Tenancy By the Entireties: Same as the previous kind, but only applies to the married couple. Note that it’s only available in some states.
- Survivorship Community Property: Also suitable for married couples and only available in Arizona, California, Alaska, Texas, Wisconsin, Idaho, and Nevada.
One problem with joint ownership is that a joint owner will have certain rights. For instance, if you make your child a joint owner of your home, then they must agree to the mortgage or sale of the property. Also, half of all of the property might be considered part of the deceased owner’s estate for tax purposes.
In addition, your property may be subject to the claim of a divorcing spouse or to judgment creditors. Adding another person, an owner can also trigger the federal gift tax if the property value exceeds a specific amount.
Set-Up Pay-On-Death Financial Accounts
Banks and other financial accounts like IRAs can designate a beneficiary upon your death, called Pay-on-Death.
This is mostly preferred to joint ownership since the beneficiary won’t have any rights until the owner dies. Designating your beneficiary simply means filling out a form provided by a bank or similar financial institution.
In the event of death, the assets will be paid to the beneficiary, and then the account is closed. You can designate two or more joint beneficiaries where the funds are divided between them upon your death. To accomplish this, you’ll need to set up a living trust or a last will first.