Avoid Probate

Probate is the formal and legal process that States require to transfer your property to your heirs after you die. There are a number of probate avoidance techniques available to everyone and most are very easy to set up and cost nothing but your time to initiate. The purpose of avoiding probate is to free up your estate from lengthy court proceedings and legal fees. Typically, probate fees cost 5% or more of the value of the estate property.

Read on for complete information.

Probate Avoidance Menu

• Introduction (Continued)
  • Asset Allocation Chart (Example)
    • Chart Analysis (Details)
• Joint Tenancy
• Beneficiaries / POD / TOD
  • What Beneficiaries Need to Know and what do You do When an Account Owner Passes  (Article on www.fedretire.net)
• Gifts and Gift Taxes
• Check out estate planning items (Wills, Trusts, and other estate planning software and books)
• Return to the Financial Planning Page

Introduction

The book, Plan Your Estate states that, "Probate is the name given the legal process by which a court oversees the distribution of property left by a will." The average probate proceedings take a year before the estate is actually distributed.
Probate delays asset distribution to your heirs, wastes your beneficiaries inheritance and it is a windfall for attorneys who can charge high fees to transfer property to your beneficiaries under probate proceedings. There are simple ways for you to avoid probate and this section describes basic probate avoidance and estate planning techniques that all can use.

Probate is also public and your will is registered at your local courthouse upon your death for all to examine and read. However, If you transfer property outside of probate through a trust or with Joint Tenancy, living trusts or beneficiary and payable-on-death account designations, the transactions are kept private. Property passed outside of probate lets your spouse and loved ones get their inheritances quickly after your death, often within weeks, instead of a year or longer that is required by probate laws.

There are times when probate is to your advantage such as having a lot of debt, complex financial transactions or litigation pending. Read Plan Your Estate, Chapter 8 for complete information on this subject.   

Review the "Estate Tax” section in Plan Your Estate for comprehensive tax guidance. For example, couples could own property individually, jointly or property could be owned through a trust. You need to identify how your property is currently registered and then you can evaluate which probate avoidance methods to use for each asset. Look at the deed to your home to see how your home is registered. Joint Tenancy can be listed a number of ways and it varies from state to state.

For example, in Pennsylvania a title registered in the names of both parties such as "John Smith and Jane Smith Husband and Wife" is considered joint tenancy. Review "Joint tenancy" for more details and if you have any questions about how your title is registered contact the lawyer or title company that closed your sale or simply contact a local title company and ask them if your registration – the way it is stated on the deed – is equivalent to joint tenancy.

Compile a List all of the following accounts and assets that you own and review the sample Asset Allocation Chart listed below. Use our free downloadable Asset Allocation Chart to assign asset registrations that meet with you and your spouse's desires.

• Bank accounts
• Bonds
• Certificates of Deposit
• Homes
  • Principal residence
  • Vacation home
• Insurance policies
• Money Market accounts
• Mutual Funds
• Vehicles
  • Recreational vehicles
  • Cars
• Retirement accounts
• Stocks, bonds, savings bonds, etc.

Asset Allocation Chart

This chart lists who receives assets when either partner dies. Review the chart that follows carefully and then read the comprehensive discussion provided for this chart to clarify any questions you may have. The rules change somewhat depending on whether or not your state is governed by “Common Law” or “Community Property” laws. Download our free downloadable Asset Allocation Chart (a Word document) that you can use to assign ownership and beneficiaries, etc.

Terms
BEN = Beneficiary
JT = Joint Tenancy
POD = Pay-on-Death or TOD Transfer-on-Death

 

Asset	Trust/ JT/POD	Estate Spouse	To Heirs	Comments
JOINT TENNANT ASSETS
Home Value	JT	$120,000
Home Contents	JT	$45,000		Resale Value
Bank Checking Account	JT	$1,000
Money Market Savings	JT	$5,000
Stocks	JT	$25,550		See attached list
Cars-Chevy  & F150 Ford	JT	$22,000		Current Value
Sub Total		$218,550
Spouse’s Assets
Stocks (All holdings)	TRUST		$15,000	See “Living Trust”
IRA	BEN		$45,000	50/50 Son/Daughter
CDs	POD		$10,500	"
Checking Account First national	POD		$1,200	“
Credit Union Savings	POD		$2,300	“
Insurance Policy	BEN			$25,000 (Husband)
Sub Total			$73,500	To Children 50/50
Retiree’s Assets
Stocks (See attached chart)	TRUST	$25,000	$25,000	See “Living Trust”
Brokerage Account	POD	$25,000	0
Savings Bonds	POD	$30,000	0
Credit Union Savings	POD	$10,000	0
Thrift Savings 401K	BEN	$100,000	0
FEGLI Life Ins (Gov’t)	BEN	$150,000	0	Reduces after 65
Life Insurance Policy #2	BEN	0	$25,000	Half to each child
Life Insurance Policy #3	BEN	$25,000
Sub Total		$365,000	$50,000	$25,000 / child
Spouse’s Estate Assets		$583,550
Analysis: If the retiree dies first his spouse’s estate would equal $657,050 the sum of $583,550 plus her $73,500 in assets in today’s dollars. Each child would receive ½ of $50,000 or $25,000 each. If his spouse dies first all her stocks and cash accounts would go to the children leaving them $73,500 or $36,750 each. If the spouse dies first the remaining assets would equal $458,550, all joint tenancy assets, retiree's assets less his insurance, plus his wife's insurance policy value. At age 67 the retiree's FEGLI Insurance decreases to $34,000. His spouse’s estate at age 67 would decrease by $116,000 leaving her with $511,050 in today’s dollars if he would die at age 67 or later.

 

Gifts & Gift Tax Exemptions

Anyone can give property away during their lifetime to whomever they choose. Gifts are a good way to reduce your estate, they are easy to do, and if your estate is large enough you can save on estate taxes. The downside to gift giving is that after you give property away it is gone forever. Currently, large gifts of over $18,000 per year per person require you to file a gift tax return with the federal government and if you give gifts to minors the gifts are subject to special rules to keep them tax-free.

Gifts are exempt from gift tax for gifts of $18,000 for 2024 to any one person per year. A married couple can give $36,000 to any person per year tax free, $18,000 each from the husband and wife. The one exemption is that you can gift tax-free any amount to your spouse.

If you pay your children's or grandchildren's tuition or medical expenses those gifts are tax free as well. Any amount that you donate to tax-exempt charities is also tax free. The 2024 federal estate tax exemption, the amount an individual can leave to heirs without having to pay federal estate tax, rises to $13,61 million per person. For a married couple no federal estate taxes would be due for estates of up to $27.22 million. These provisions will sunset on December 31, 2025, causing the exemption limits to revert to approximately $7 million for individuals and $14 million for married couples.  

There are many considerations and potential tax savings possible with gift giving. You need to thoroughly understand the options.  Plan Your Estate describes all of your options, their advantages and disadvantages. For example, you need to aware of the tax consequences of gifts to minors, special gift tax rules, and state law differences. This book describes Gifts and Gift Taxes in Chapter Fifteen.  

Go to Detailed Asset Allocation Chart Discussion
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