Ease the stress on your family: Understanding probate and 7 ways to avoid it

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1 Ease the stress on your family: Understanding probate and 7 ways to avoid it

2 Table of contents Minimizing your family s stress 1 What is probate? 2 7 ways to keep your estate out of probate 4 How an attorney can help 6 How to choose a good attorney 7 Disclaimer: The material on this website or whitepaper is for informational purposes only. This information is not legal advice. The law changes constantly, and the information may not be correct on the date you read it, and it may not apply to your particular legal problem. Each legal problem depends on its own facts, and the law is different in each state and country. Because of this, you should not rely on any information on this website or whitepaper without first obtaining advice from a licensed, competent attorney about your particular problem. For more information, visit sandiegolawfirm.com/terms

3 Minimizing your family s stress By now, if you re thinking about estate planning, you know that there s a lot more to worry about than who gets what. You want to make sure that your loved ones are able to get their inheritance quickly and efficiently, and in the way you intended. You don t want them to have to deal with a long, drawn out process, fraught with court rules, paperwork to file, and fees that diminish the value of the estate. The nightmare described above is called probate. You may have experienced this process if you ve ever had a relative die without an effective estate plan. You may have been the personal representative, which involves even more stress than being just a beneficiary. Probate is: Expensive Time consuming Complicated Stressful Public (Anyone can go to court and see how your assets were distributed) If you don t have an effective estate plan, you risk subjecting your loved ones to all of the above. By the time your assets are distributed, the value of your estate will be diminished and a judge will ultimately decide the outcome. You might already have an estate plan, but it may not be effective at avoiding probate. For instance, if you just have a will in place, your estate can avoid probate only if it is valued below a certain amount. For more valuable estates, you will need a living trust. If you re looking to pass on your wealth to your family with an estate plan, you re on the right track. Taking it one step further, and making sure you have the right estate plan, will help ensure that your loved ones will be able to take possession of that wealth in the quickest and most efficient way possible. Page 1

4 What is probate? Probate is the court process of wrapping up your affairs after death. The goal is to tie up loose ends, pay off debts, and make sure your assets are distributed properly. The probate process begins when someone (the petitioner ) files a petition for probate with the court. This gets the ball rolling. The court will set a date for an initial hearing, and the petitioner will have to send notice to everyone involved. (At the initial hearing, if someone decides to contest the will (challenge its validity), they will have a chance to do so.) The court will appoint a personal representative to administer the estate (this may or may not be the person named in the will). The personal representative will be responsible for protecting and managing the estate, paying creditors, and distributing the assets. From here on out, the personal representative will have a lot to do: Marshalling (gathering) all the assets of your estate, and having them inventoried and appraised Notifying creditors of the probate case and paying off your debts Selling estate property, if necessary, to pay off your debts Filing any necessary tax returns for you and the estate Filing all necessary paperwork with the court Keeping track of, and adhering to, all court deadlines Contacting and communicating with the beneficiaries (Serving as personal representative adds particular stress, as this person is responsible for the management of the estate. If they mismanage the estate, they might be denied compensation or even held personally liable.) Page 2

5 After your debts have been paid, the personal representative will distribute your assets according to the final judgment of the court. After preparing a final account to the court, the personal representative can petition to be released from obligation. The process generally takes anywhere from 8 months to over a year. Depending on the circumstances, it could take even longer, sometimes even dragging into years. Some common issues that can prolong the process include: Will contest: If someone contests the validity of the will, additional time in court (and added expense) will be involved. Numerous beneficiaries: The more beneficiaries there are, the more difficult it is to notify and communicate with them. Beneficiaries don t get along: When beneficiaries don t agree, it often requires spending more time in court to get the issues sorted out. The estate is large, unusual, or complicated: The complexity of the estate adds time to the administration, as it takes longer to gather, appraise, and distribute the assets. Personal representative is not qualified: Without the right person for the job, the personal representative can delay the process in any number of ways. Costs associated with probate include attorneys fees, court fees, appraisal costs, and fees for the personal representative. These costs diminish what your beneficiaries will receive, and the time involved delays them receiving it. That s probate in a nutshell. It s not fun for those involved, and your family will appreciate your efforts at helping them avoid it. Page 3

6 7 ways to keep your estate out of probate By now you may be wondering, How do I keep my family from having to deal with probate? There are several ways to keep your estate out of probate. The following are the common methods, including their relative strengths and weaknesses. JOINT OWNERSHIP OF PROPERTY Property you own jointly with someone else (such as your spouse), with a right of survivorship, does not go through probate. It passes automatically to the other owner when you die. One example of this is what s known as joint tenancy, a way for more than one person to own property together, such as a bank account. Community property in marriage also avoids probate and is automatically transferred to your surviving spouse if you die. Joint ownership of property has some drawbacks, including giving up your ownership in the property. Also, if the other person gets into debt, the property could become susceptible to creditors. It s best to discuss your options with an estate planning attorney. PAYABLE-ON-DEATH (POD) ACCOUNTS POD designation allows you to specify a beneficiary to whom your account will automatically be paid when you die. Your beneficiary will not have to go to probate to get this money. In order to retrieve the funds, the beneficiary would go to the bank and show proof of death and personal identification, or follow whatever rules the bank has in place. TRANSFER-ON-DEATH (TOD) REGISTRATION Similar to POD accounts, for some property, such as a vehicle, you can indicate beneficiaries to whom ownership will automatically be transferred when you die. This way, the property can pass to your loved ones without going through probate. Page 4

7 Keep in mind that neither POD accounts nor TOD registration give you as much control or flexibility as a living trust. For instance, if you would rather your child not receive a particular asset until they graduate from college, you could set that out in a living trust. SIMPLIFIED PROBATE If your estate is valued at less than a certain amount, and there is no real estate involved (such as a house), your beneficiaries might be able to use the simplified procedures of probate court. If your estate qualifies, they will be able to transfer the assets by filling out an affidavit with the court. GIVING PROPERTY AWAY BEFORE YOU DIE Once you give property away, you no longer own it, so it can no longer become part of your estate. Giving property away before you die can help keep those assets out of probate. However, depending on how valuable the gift is, there may be tax consequences. LIVING TRUST This is the ideal way to avoid probate, particularly if you have a somewhat larger estate. A living trust is an arrangement you set up whereby a trustee manages and distributes your assets according to your wishes. You can set yourself up as the trustee and be able to change or amend it while you are alive. The ownership of your property is transferred to the trust. After you die, a successor trustee would take over and carry out your wishes. Unlike wills, living trusts become active on the date they are created, and trusts are more flexible in the way they can distribute your assets. Most importantly, living trusts allow your assets to be distributed without going through the probate process. TALKING TO AN ESTATE PLANNING ATTORNEY A probate attorney will be able to help you come up with a detailed plan for your particular estate. Depending on the circumstances, it may include setting up a living trust to distribute your assets. But an attorney will look at the big picture of your estate, explain your options and the implications of each one, and help you develop a comprehensive estate plan. Page 5

8 How an attorney can help If you want to help your loved ones avoid probate and receive their inheritance quickly and efficiently, you need to draft the right estate plan. An attorney can take a look at your situation, help you figure out what you need, and draft an estate plan designed to keep your family out of probate court. If you think estate planning is too expensive or time consuming, consider this: A good attorney will do the heavy lifting for you, letting you carry on with your life, knowing your family won t have to deal with probate later on. A good estate plan actually saves your family money in the long run. The more of your assets that you can keep out of probate, the less of your estate will be eaten up by court and attorneys fees. Once you have an estate plan in place that is tailored to your particular estate, you can rest easy. Your family will not only be provided for, but they will not have to deal with the hassle of probate. Page 6

9 How to choose a good attorney An estate planning attorney should be someone you trust and with whom you can form a close, personal relationship. He should have genuine concern for the welfare of you and your family. After all, you ll be sharing personal family details and he will be helping you provide for your loved ones after you re gone. He should also be a good lawyer. As such, your estate planning attorney should have these qualities: A focus on continuing legal education that allows him to stay up to date with all relevant laws A solid understanding of the interplay between probate and other areas such as tax law Attention to your particular needs, as opposed to having a one size fits all approach to estate planning Experience with both sides of probate: setting up estate plans to avoid it, as well as probate administration, so that he knows probate inside and out An emphasis on saving your family money and hassle in the long run San Diego Law Firm can offer a consultation to talk about how to best keep your family out of probate. If you think we re a good fit for you, we will gather as much information as we can before we help you draft your estate plan. Please call us for a consultation at (619) We look forward to helping you. Page 7