Trusts are an excellent estate planning tool. They provide greater control over the distribution of your assets, are flexible, keep the details of your estate private and can help prevent your estate from going through probate.
But trusts aren’t everyone’s cup of tea. They’re complex to set up, require ongoing maintenance and may not suit your estate planning needs. Fortunately, if you’re looking to keep your estate out of probate, you have other options.
Why do people want to avoid probate?
Probate is the court-ordered process of validating the deceased person’s will, paying debts and final taxes and distributing the assets. This process can take 12 to 18 months, though complex estates can take longer. Probate costs can be substantial. California has a statutory fee schedule, typically ranging from 4% to 7% of the estate’s total value.
In addition, probate is a public process. Anyone can access court records to see what you owned, who inherited your assets and details about your family’s financial situation.
A simple way to avoid probate is through joint ownership. When you own property jointly with another person, that asset bypasses probate and automatically goes to the surviving owner upon your death. They then become the sole owner. This is a common arrangement for married couples or close family members, and doesn’t require court intervention.
Payable-on-death and transfer-on-death accounts provide an alternative method for transferring assets directly to beneficiaries without the need for probate involvement. Most banks allow you to designate payable-on-death (POD) beneficiaries for checking accounts, savings accounts and certificates of deposit. When you die, beneficiaries present a death certificate to claim the funds.
This is an excellent strategy for emergency funds or accounts you want specific people to be able to access immediately.
Investment and retirement accounts can utilize transfer-on-death (TOD) designations, allowing them to pass directly to the named beneficiaries. Life insurance proceeds can also pass directly to the individuals named in the policy. These are excellent tools for providing your family with immediate liquid funds to cover funeral expenses, debts and any immediate family needs.
There are other strategies for minimizing the size of your estate while you’re still living, such as gifting. Discuss your goals with a legal professional so they can assist you in structuring an estate plan that ensures your assets pass efficiently to your beneficiaries while saving time and money.
