You have probably heard people talk about how important it is to avoid probate; however, they may not have explained why probate avoidance is so important. More importantly, they may not have discussed how your estate can avoid probate. To make sure you understand the importance of probate avoidance, the Phoenix estate planning attorneys at Morris Hall PLLC explain why avoiding probate matters and how your estate can avoid probate.
What Is Probate and Why Is It Necessary?
When a person dies, he or she leaves behind an estate that consists of all the assets the individual owned or had an ownership interest in at the time of death. This includes both real and personal property as well as both tangible and intangible assets. Probate is the legal process that many of those assets must go through before eventually being transferred to the intended beneficiaries or legal heirs of the estate. In addition, probate serves to identify, locate, and value those assets as well as notify creditors of the estate and provide them with the opportunity to file claims against the estate. If a Last Will and Testament was executed by the decedent prior to death, probate also authenticates the Will, or in the alternative, provides the legal forum for contesting the authenticity of the Will. Finally, probate ensures that any state and/or federal gift and estate taxes owed by the estate are paid.
Why Is Avoiding Probate So Important?
Probate avoidance is a common estate planning goal for several reasons. If your estate goes through formal probate, the terms of your Will become public record. By avoiding probate, you can keep details regarding the distribution of your estate private. Probate can also delay the distribution of the inheritance you intended for loved ones. In Arizona, creditors have four months after the notification of probate is published to file claims. Consequently, probating even a modest and uncomplicated estate typically takes a minimum of six months, but can easily take a year or longer. Because probate takes so long, beneficiaries must often wait a long time to receive their intended gifts. Finally, probate can be expensive. Everyone involved in the probate of an estate is entitled to a fee for their services which typically diminishes the value of the estate, meaning your loved ones may receive less than what you intended.
- Using a trust to distribute estate assets. Most people use a Will to distribute their estate assets when they create an initial estate plan. One strategy for avoiding probate, however, is to use a trust instead because assets held by a trust bypass the probate process altogether and can be distributed to beneficiaries as soon after your death as you wish. Using a trust to distribute assets offers other benefits as well, such as the ability to stagger an inheritance instead of leaving a lump sum to a young beneficiary and the ability to retain a certain degree of control over how assets are used.
- Lifetime gifting. The key to avoiding probate is to have nothing left to probate. While that may not be possible, you can transfer as many assets as possible while you are alive to limit your estate’s exposure to probate. This works because only assets owned by you at the time of your death are potentially subject to going through probate. In addition, there are often tax advantages to lifetime gifting that may further benefit your estate by limiting your estate’s exposure to federal gift and estate taxes.
- Titling assets and accounts so that they pass to the new owner outside of probate. Paying close attention to how you title assets can also help your estate avoid probate. Real property, for example, can be held jointly with rights of survivorship, allowing your interest in the property to pass directly to the co-owner upon your death without first going through probate. Certain accounts can also be designated as “Payable on Death (POD)” or “Transfer on Death (TOD)” accounts which allows you to designate a beneficiary who will automatically become the owner of the assets held in the account upon your death. Unlike jointly held assets, however, a beneficiary of a POD or TOD account has no ownership interest in the asset while you are alive.
Contact Phoenix Estate Planning Attorneys
If you have additional questions or concerns about how to avoid probate for your estate, contact the experienced Phoenix estate planning attorneys at Morris Hall PLLC by calling 888-222-1328 to schedule your free consultation today.