Probate is a legal process that involves the valuation and the distribution of a deceased person's estate. This process takes place even if you have a will. The probate process can take months; even years. The costs can easily run up to several thousands of dollars. In addition, it is a probate court or a probate judge that makes sure your debts are paid, clear title to your property is established, and your assets are distributed according to your will.
Did you know that;
- Having a will guarantees that your estate will go through probate?
- Your exact probate cost is unknown but the average cost of probate is 4% to 10% of the gross estate?
- The average length of probate throughout the country is 13 months?
- 90% of all estates of singe widowed adults age 60 and over go through probate?
- Failure to utilize each spouse's federal estate tax equivalent exemption can cost an estate up to $235,000 in unnecessary taxes?
Can probate be avoided by the use of joint tenancy?
Yes--and no. Joint tenancy can delay probate, but it cannot avoid probate altogether. The probate process (but not necessarily the cost) can be avoided only on the first to die if you hold your assets in joint tenancy (for example, between husband and wife) or, in some community property state, if you have executed a Community Property Agreement. However, when the second spouse dies, all of the assets in the estate must go through the probate process. Consequently, all that you have really accomplished with joint tenancy is to delay the inevitable---ultimately causing your heirs to go through the agonizing probate process. In addition, by holding assets in joint tenancy, you lose half of the stepped up valuation when the first spouse dies. You have also forfeited one of your $600,000.00 federal estate tax equivalent exemptions. If you decide that the way to avoid probate is to go into joint tenancy with your children, any such assets in joint tenancy are subject to any lawsuits to which your children might be a party.
Frequently, an individual will say, "My spouse died and I never went through probate." Upon the death of a spouse, no one directs that you must go through probate. You do not have to go through probate---until you want to sell an asset that is held in the name of the deceased person. As long as you do not desire to sell anything, you do not need to go through probate. The purpose of probate is to establish clear title, and you must have either clear title or the authority to sell an asset.
For example, assume that, seven years after the death of your spouse, you decide to sell your house. You list the house with a real estate broker, who finds a buyer, and you enter escrow. When escrow is ready to close, you are invited to come into the escrow office to sign over the deed. After you sing your name, the escrow officer says, "We also need to have the signature of your spouse." When you say, "My spouse died seven years ago," the words fall on deaf ears. Escrow immediately stops, the buyer for your home is gone---and now you have to go through probate. The same situation would be true with your stocks, bonds, and other assets.
Most Americans have worked a lifetime to build a financially secure estate for their family and heirs. Depending upon personal need, estate planning can be essential without regard to income or net worth. Without a plan for the future, you could leave your loved ones with unexpected legal problems and estate settlement delays. In addition our estate could be needlessly taxed. Through the preparation of a funded estate planning package, your family can avoid costly attorney's fees, court costs, and reduce or eliminate possible federal estate taxes, minimize stress and keep your personal affairs completely private.
WILLS VS. LIVING TRUSTS
A well-drafted and properly funded Living Trust will avoid the probate process in every state where you hold assets.
Until recently, a will was considered the cornerstone of any estate plan. Even today, a will may be vital if your children are minors, since it's in a will that you nominate guardians for them should they be orphaned. Moreover, a will may be adequate if you have few assets. For transferring moderate to sizable estates, or complicated estate, however, estate-planning attorneys favor living trusts, so named because you place your property in the trust during your lifetime. As the trustee of a living trust, you can change the trust terms at any time during your lifetime without giving up control of your assets. When you die, the trust assets are distributed to the beneficiaries you named, according to instructions you set forth in the living trust document. Or you can instruct that the assets flow into a different type of trust, such as a special-needs trust for a disabled beneficiary. Here's how wills and living trusts compare in four key areas:
- PROBATE. Assets you transfer via a will must go through probate, the potentially costly and time-consuming court process of administering your will. Assets you transfer via a living trust avoid probate.
- PRIVACY. When a will is probated, its contents are made public. Since living trusts are not probated, there are no public records of the trust's terms.
- INCAPACITY. In a living trust, you can name a successor trustee to manage the trust assets should you become mentally or physically unable to do so. Without a living trust, you will need to draw up a durable power of attorney to name someone to take charge of your assets should you become incapacitated.
- INCONVENIENCE. With a will, you simply bequeath your separately owned assets that do not have a named beneficiary. In contrast, the property you place into a living trust need only be retitled to the trust. Anything not so titled when you die will have to be probated.