What takes years, dips into your estate money and ignores your wishes? Probate. When someone passes away with no legally binding estate plans, all their assets must then go through the state run probate courts. Depending on the size of your estate, it’s a process that can last anywhere from months to years all while digging into the money left behind in order to cover the legal fees.
While the deceased may be happily looking down, glad they don’t have to be there, it can be an incredibly taxing experience for families dealing with a loss.
“Dealing with probate on your own is tricky.” Fairhope estate planning attorney Deepti Asthana said. “You’re in a state of mind where you don’t want to worry about what documents need to be filed in the court, what are the proper steps, what is the court fee, where do I need to go…”
In a time reserved for grieving, many loved ones are left with a whirlwind of arguments, courtroom visits and paperwork, cumulatively known as aggravation.
Wealth attorney and author of “Asset Protection 101” J.J. Childers says the rich, poor and everyone in between should do what it takes to escape probate.
“There’s hell, and then there’s probate,” he writes in the book.
Do what it takes. Turns out, it doesn’t take too much. Six steps if you want to hit a grand slam out of probate court; one or two if you want to hit a home run.
Asthana is a founding partner of Alabama tax and estate planning firm, Caldwell, Wenzel & Asthana, P.C. With international tax experience, she launched her legal career in Canada’s financial district before packing up shop for Alabama. She specializes in estate and trust litigation managing clients with assets totaling in the seven figures. If her clients want to stay out of probate, she recommends following six steps.
6 Steps to Avoid Probate Nightmares
- Stop Procrastinating, Write a Will
Unless haunting probate courtrooms in order to see your family members sounds like an entertaining afterlife special of Judge Judy, prepare -and update for certain life events- a will. Die without one, and family members will be forced into what’s called a dying intercession, meaning the state will decide how to divvy up everything in the deceased’s name. Typically, the state selects living spouses or children, but there’s always room for three things: exceptions, ignoring your wishes and family battles for more. If parents of young children die, guardianship will also be decided by the court; if a sole business owner dies sans will, the probate court often decides to sell it for various legal reasons.
More than half of Americans ages 55 to 64 and 62 percent of 45 to 54 years old don’t have wills (as of 2014). Clearly many people aren’t prioritizing will writing; but if you do, you’ll share in a multitude of advantages from ensuring your wishes, protecting your children and business ventures, and preventing assets being drained during the probate process. So seriously, don’t be part of that statistic.
However, a will alone is not enough to escape probate nightmares. In fact, you’ll still have to go through the probate system, it should just be a smoother process.
- Consider Revocable Living Trusts
Keep reading even if you’re not the fortunate kin of the Queen of England, Warren Buffett or the Kardashian clan- trust funds aren’t just for the rich, contrary to popular belief.
“The beauty of a living trust is that you are able to avoid probate and at the same time control and benefit from your assets,” Asthana said of her experience working as a living trusts attorney. “Setting a living trust during your lifetime can be extremely advantageous…[and] is considered the best tool to avoid probate.
Besides escaping probate, what are these said advantages? A trustee, rather than you, owns the trust property so after your death the trustee can transfer your property to the family of friends you intended it to pass on to. All your wishes are specified in the trust, resembling a will. Bye bye probate.
Legally speaking it’s slightly more complicated to set up, so you’ll most likely want to seek advice from an estate planning attorney. Insider tip: depending on state laws, they may be able to get you some estate tax reductions (but that’s just a maybe).
- Transfer Over to Pay-On-Death Accounts
This is so easy it’s almost silly it’s not just part of the process when opening a bank account. Go into your bank(s) and fill out the form selecting your beneficiary. When you die, all the money inside the account will automatically transfer to your beneficiary sans probate. This also applies to IRAs, and in some states vehicle registrations and real estate deeds. However, this is not a get out of taxes card; the beneficiary will have to pay them after the deposit. Also, make sure the selected person is also mentioned in the will to avoid any late estate planning arguments.
- Gifts, Gifts, and Giveaways
Don’t want to pay taxes from the grave? Give your assets away…before you die! Of course, there are limits to tax free gifts so this may not work for your vacation home worth $6 million, but it’s definitely the closest you’ll get. If you own a large estate or have assets with a high market value, it would be wise to have an estate planning attorney structure your gifts with a “tax-free treatment” in mind.
- Name a Power of Attorney and Executor
Should you become incapacitated, a power of attorney – legally called an “attorney in fact” or “agent”- is able to pay bills, takeover investments and any other financial decisions you previously ruled over. This person must be selected prior to needing them, of course, and should be someone you trust. However, even if their trustworthy nature falters, they are legally obligated to act in your best interest. After death, your executor- who should be named in your will- will handle filing tax returns, distributing your property, handling creditors, etc. Again, pick someone wisely and who is knowledgeable in these designated tasks. Neither of these roles has to be filled by an attorney, but hiring one is an option.
- Plan your Death, Literally
To be viewed or not to be? To be cremated or buried? Funeral home or New Orleans style parade? Some people are particular about their own memorial services while others may not care. If you’re the latter, here are some reasons why you should.
Funerals are expensive, and they’re not getting any cheaper. Planning ahead, looking into prices for example, can allow you to set aside money (maybe set up at pay-on-death account) to help take away some of the now common financial struggles of funeral expenses. If there is no documentation of your wishes, family members must decide. This becomes of particular issue with cremation. In many states, unless the deceased pre-signed legal authorization for the service, all children must agree and sign legal documentation or it can not happen. But with all this said, be wary of pre-paid funeral scams; they can actually become the most costly option.
The easiest way to avoid probate, simply put, is to be prepared through estate planning. If you want to know more about Alabama real estate attorney Deepti Asthana, check out her attorney spotlight.