Many of us have experienced the devastating grief of losing a partner or parent. That grief can be magnified when we need to handle the settling of the estate.
This may have been easier for a surviving spouse, if all assets were held jointly. But if you had to settle the estate of a parent, you may have experienced the time, expense and stress of probate, which is the legal process for settling an estate.
To make sure your heirs have it easier, consider using some tools that help them legally avoid probate, but still receive their inheritance. Here are three good options:
1. Make a will — and keep it updated
A will contains the wishes of the deceased person, including how to distribute assets, who will be the beneficiaries, who will be in charge of selling and distributing assets (an executor) and burial directives.
“Without a will, the state essentially writes a will for you, determining who will inherit from you and in what shares, whether you would like it or not,” says Jennifer B. Cona, the founder and managing partner of Cona Elder Law in Melville, New York.
For these reasons, a will is the bare minimum component of your estate plan. Attorneys can help you write your will; there are even free and low-cost online platforms where you can create one yourself.
Your will should contain a list of all of your assets and property, the names of your beneficiaries and how the assets will be split among them. It also should name an executor to carry out the wishes in your will and you should choose guardians for minor children and pets. It is important to keep it updated.
“Relationships change, laws change and your assets change,” says Cona. “Many people sign their wills and forget about them. We recommend reviewing your estate plan every two to three years to make sure the people you have named as beneficiaries and fiduciaries (the executor and others managing assets) are still the people you want in those roles.
“You should review your plan right away if there has been a death in the family, marriages, births, significant changes in your assets or changes in the tax laws.”
Also see: Don’t leave a clueless trustee behind in your estate plan
2. Name beneficiaries for all accounts
Make sure to name and record beneficiaries for all of your savings, investment and retirement accounts as well as individual investments such as certificates of deposit (CDs), savings bonds and life insurance.
I have a personal example of why this is important. My mother died earlier this year and did an excellent job making it easy for me to inherit her estate without a probate process. However, she forgot to add me to one bank account as a beneficiary or joint owner.
In order to get those funds, I had to work with a lawyer to file a distribution without administration. It’s a Florida option that allows the person who paid the funeral or final medical bills of the person who died to be reimbursed using the estate’s assets. This required me to collect receipts for payments as well as a lot of other paperwork, and I had to pay the lawyer and a filing fee.
Bottom line: The time and stress involved in gaining access to this one account could have been easily avoided. Make sure to have a beneficiary for each asset you own that may pass to your heirs.
A tip: if you have accounts at banks or credit unions (such as checking and savings accounts and CDs), you can create a Payable on Death (POD) designation for each one so that one or more beneficiaries can receive the proceeds without going through probate.
Finally, if you have joint accounts and property with your partner, you will be able to avoid probate, since you’re essentially bypassing the estate process. However, if you’re a surviving spouse and are considering making your children joint owners instead of beneficiaries, proceed with caution.
My mother made me the joint owner of all of her accounts and assets (except the account mentioned above), but I am the exception, not the rule. We were very close, as an only child I was the sole beneficiary and she was divorced and never remarried. However, few estates are this straightforward, so joint ownership is not recommended in most instances.
Also see: How to give your heirs quick access to your bank accounts when you die
“Adding a joint owner to an account is ripe for abuse and unintended tax consequences because the ownership addition could amount to a gift,” says Eido Walny, founder and managing partner of Walny Legal Group in Milwaukee, Wisconsin. And that is not even the worst that can happen.
“Several years ago, we got a call from a woman who was added to her mother’s large checking account along with her brother,” recalls Walny, who is a member of the national board of directors of the National Association of Estate Planners and Councils. “When her mom died, her brother cleared out the account. That was not what mom had intended, but which she empowered her son to do.
“Litigation would have been the only option to retrieve the money, but the sister did not want to sue her brother,” he explains. “That’s a bad result for everyone involved, except the brother. Beneficiary designations are a far better method to use.”
Related: ‘My father, 75, died without a will’: His ex-wife, fiancée and children are hiding his financial documents. What can I do?
3. Use probate avoidance tools and shortcuts
A number of estate planning tools can help you avoid probate altogether or at least greatly shorten the process. They vary by state and work better in some circumstances. Some examples:
- Check to see if your estate qualifies as a “small estate” inheritance. Each state allows inheritors of “small estates” to avoid the probate process. Small estates can be as little as $50,000 or as much as $500,000. To receive the assets, your heir(s) will need to fill out a form (often called an “affidavit”), get it notarized, and then present it, along with a death certificate, to a bank or institution holding the asset.
- Consider “Transfer on Death” deeds if you own property and your estate will not qualify for the “small estate” exemption. Over half of U.S. states allow this, and five states (Florida, Texas, Michigan, Vermont and West Virginia) allow a similar option — Lady Bird deeds. These let you name a beneficiary for your home, but let you live in the property while you are alive. When you die, the property is transferred without probate.
- Set up a living trust if your state doesn’t offer Transfer on Death options, or your estate is too complicated for one.This might be your best option if you are divorced or remarried, have stepchildren or children from a prior marriage, have strained family relationships or estranged family members, own properties in multiple states, own a business or own substantial assets and want to reduce your estate taxes.
“A living trust is our preferred manner of making sure property passes to beneficiaries without probate,” says Walny. A living trust, he says, can also include other assets that can be passed on without probate, notably savings accounts and other investments.
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Act carefully when creating a living trust. “Some assets, such as retirement accounts and life insurance policies, shouldn’t be included in living trusts, as they can trigger tax consequences,” Walny says.
Margie Zable Fisher is a freelance writer and the founder of The 50-Year-Old Mermaid, where she and other 50+ women share their learnings and experiences on living their best lives after 50. Her website is margiezfisher.com.
This article is reprinted by permission from NextAvenue.org, ©2024 Twin Cities Public Television, Inc. All rights reserved.
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