Recently, I have had a lot of first hand experience in the probate process. Both of my parents passed away in 2018 and I wanted to pass on some of the tips that I learned as me and my siblings settled their estates.
Probate is the legal process through which a deceased person’s estate is properly distributed to heirs and designated beneficiaries and any debt owed to creditors is paid off. In general, probate property is distributed according to the decedent’s last will and testament, if there is one, or according to state law if no will exists. By the way, I dealt with the probate laws in the state of Florida.
First, property that goes through probate isn’t a bad thing. It’s just that it takes time, attorneys, and a good amount of paperwork. You can avoid probate almost entirely by creating a living trust and placing all of your assets inside that trust. But again, this takes time, attorneys, and a good amount of paperwork.
The good news is that you can do a few things on your own that require little time and paperwork to avoid the probate process.
- Make sure that all accounts that allow beneficiaries have one assigned. Examples of these accounts are retirement accounts (IRA, 401k, etc.) and life insurance policies. If you don’t name a beneficiary, these assets get passed to your estate, which will then have to be included in the probate process.
- For taxable brokerage accounts, retitle the account to a transfer-on-death (TOD) account. This allows you to assign beneficiaries to this account, thus avoiding probate.
- For bank accounts, change to a payable-on-death account. Just like a TOD account, this allows you to assign beneficiaries to this account, thus avoiding probate.
- For your home, you can add an heir to the deed as a joint owner. That way, your portion of the house will go directly to the joint owner, avoiding probate. This would be considered a gift for tax purposes, but as long as your house isn’t worth over $20 million, you can avoid any taxes by applying the gift to your lifetime exemption of $11.4 million.
Making these easy changes now to your parents’ accounts and to yours can save you time and money, but most importantly, give you and your family peace of mind knowing that your affairs are in order.
Please feel free to contact me with any questions.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
