Many people assume that estate planning is only for the ultra-wealthy or for those who have enough assets to face estate taxes. That’s not true, though. Estate planning is an important piece in the financial puzzle for anyone who has accumulated assets and wishes to pass those assets onto their loved ones.
Even if you don’t meet the asset threshold to worry about estate taxes, there are still plenty of other costs that can erode your legacy. One is health care and long-term care costs at the end of your life. Another is funeral expenses. And yet another potential threat is probate.
Probate is the legal process for settling one’s estate. It involves the local court and the estate executor working to finalize any outstanding issues. Probate usually includes filing tax returns, paying debts, liquidating assets, and notifying potential heirs. The process can last for months and it can generate substantial legal and administrative costs, most of which are paid from your estate.
The good news is that there are ways to set up your estate so your probate exposure is minimized. Below are a few common strategies to do so. If you haven’t maximized these and other tools in your estate plan, now may be the time to do so.
Under most circumstances accounts with beneficiary designations bypass probate. Instead, those assets are paid out by the account or policy administrator. Examples of these types of assets include life insurance, annuities, IRAs, 401(k) plans, and more.
On these assets, your beneficiaries simply fill out a claim form and then receive their share. There’s no waiting on the court to finish probate and there usually aren’t costs associated with a beneficiary claim. You may want to consider ways to maximize these types of tools, particularly annuities and life insurance.
While a will doesn’t have the power to bypass probate, a trust does. That’s because a trust uses a beneficiary designation to direct assets. You create a trust and fund it with assets for the beneficiary.
There are many different types of trusts, so you may need consultation from a professional to identify the best one for your needs. Some give you the ability to control how and when assets are paid. Others are very simple and exist only to minimize probate. Whichever you choose, you can place assets inside the trust and those assets will skip the probate process.
Another way to bypass probate is to use joint ownership. With this strategy, you simply change the titling of an account or asset to be jointly-owned between you and your loved one. When you die, the asset simply transfers to the other owner.
Be careful, though. When you add a joint owner, they may get the full rights of ownership immediately. That means they could be able to make the same decisions on the account that you can make. If you don’t trust your loved one with that kind of power, joint ownership may not be the right strategy. Be aware of potential tax implications with joint ownership.
You can also minimize probate by simply getting assets out of your estate before you die. How do you do that? Give them to your loved ones while you’re still alive.
By gifting assets during your lifetime, you may be able to reduce the size of your estate and thus reduce the amount that is subject to probate. As a side benefit, you also get to see your loved ones put the assets to good use. Be aware of potential tax implications before gifting.
Ready to develop a strategy to minimize probate in your estate? Let’s talk about it. Tommy Mai Financial welcomes the opportunity to help you analyze your needs and develop a plan. Let’s connect soon.
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
16291 - 2016/12/19