How to Streamline (or Even Avoid!) Probate

Probate is the legal process used to administer a person’s estate after his or her death: including verifying that your will is valid and authentic, paying off any taxes or debts, and ensuring the correct parties receive all property and possessions.

While this process may seem straightforward, probate is often very complicated, expensive, and extremely time-consuming for living family members depending on the situation at hand. This is precisely why you should do what you can now to structure your estate and thus better streamline (or even entirely avoid!) the probate process.

The importance of a will

A will, also known as a last will and testament (or testamentary will), is simply a legal document that ensures an estate is settled in the manner the deceased had intended. More specifically, this document communicates your final wishes regarding how assets and other possessions are distributed following your death.

While a will must go through probate, the process will likely go a lot smoother than if the deceased did not have one: because if you die without a will (also called dying “intestate”), the court makes decisions on your behalf.

Some of these court-made arrangements include freezing your assets until an executor (person or institution tasked with carrying out terms of a will) is appointed as well as determining how assets are split among family members. While each state has its own intestate laws, assets are often split: with half going to the surviving spouse and the remainder split equally among children—which may clash with your desires.

To complicate matters even further, dying without a will can also make probate more expensive since your loved ones will accrue additional court and attorney fees and thus inherit less than they would have otherwise. If significant assets are involved, your heirs could also face the possibility that probate will draw out for months (or even years!) before any money, property, or belongings are distributed to heirs.

Hopefully, these reasons alone will encourage you to create a will if you haven’t already done so.

How to streamline probate

For starters, placing a no-contest clause in your will is sometimes beneficial depending on where you reside (as not all states enforce such clauses) and if you’re wary someone will challenge your will in court.

A no-contest clause helps discourage disgruntled family members from contesting your will, stating that anyone who mounts a legal challenge (and loses) forfeits any potential inheritance. You can also set up a trust in this regard, which typically cannot be contested in court.

Another way to streamline probate is to choose a competent executor: ideally, someone very organized who has solid judgment and is good with finances. These attributes are very important because he or she will take on numerous responsibilities including reviewing and filing paperwork, notifying banks and government agencies of the decedent’s death, gathering an inventory of assets, managing all outstanding bills and debts, and maintaining any property before it is distributed or sold.

If you have several beneficiaries—which is fine—just remain cognizant that probate delays occur when signed documents are requested from each (a probate prerequisite), as each beneficiary must be located and made aware of current circumstances; the more beneficiaries, the more likely a few will need prodding to return signed paperwork.

How to avoid probate

With proper planning, you can arrange your estate so as to avoid the probate process—at least for the majority of your assets.

Before we delve into some of these options, keep in mind that depending on the state, a beneficiary (or beneficiaries) is sometimes eligible for a simplified probate process or can even skip probate entirely. To meet these conditions, your estate must be deemed a “small estate”: meaning that if the value of your estate falls below a specific dollar threshold, court supervision is not required for settlement.

For New Jersey, specifically, the current threshold in this regard is $50,000 if you’re the surviving spouse, civil union partner, or registered domestic partner (and $20,000 for estate heirs under NJ’s intestacy laws in the absence of a surviving spouse or domestic partner).

In New York, the threshold is also $50,000; however, you may still qualify if your estate is worth more as exempt property exclusions include one vehicle (up to $25,000) and up to $20,000 worth of furniture and household items.

Revocable living trusts
A trust—another method used to transfer assets after you pass away—requires you to appoint a trustee to manage and distribute your assets to beneficiaries. A living trust is created while the trustor is still alive and can be changed during his or her lifetime given continued ownership of property or other assets.

A living trust is a very popular option since, unlike a will, it does not require your assets to go through probate: saving your heirs both time and money. Click here to read about the differences between wills and trusts.

Designated beneficiaries
If you have a retirement account such as an IRA, annuity, 401(k), or 403(b), you can potentially bypass probate for these assets provided you had named beneficiaries for the same (with death benefits from life insurance policies also passing directly to the designated beneficiary on an automatic basis).

Keep in mind that if you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), spouses are entitled to half of anything the other spouse adds to retirement during their marriage; therefore, if you name others (in addition to or instead of your spouse) as beneficiaries, this can ultimately send the accounts to probate.

Proper asset titles
Joint asset ownership with a spouse, children, or someone else offers another probate-avoidance strategy. If you decide to go this route, just make sure the ownership structure is established per joint tenancy with the right of survivorship (JTWROS) or tenancy by the entirety (TBE) parameters.

In the former arrangement, tenants have an equal right to account assets as well as survivorship rights if another account holder passes away: avoiding probate and preventing the decedent from including his or her ownership interest in a will or bequeathing it to anyone other than the co-owner. Bank accounts and real estate are two examples of JTWROS assets.

A tenancy by the entirety setup, meanwhile, can only be arranged by married couples and in places that allow this (26 states currently permit this type of setup, each with its laws regarding how the rules are applied). This type of structure creates a right of survivorship that should one spouse die, the surviving spouse automatically receives the full title of the property or asset. TBE assets often involve real estate.

In sum: final thoughts on avoiding probate

One of the simplest, most effective actions you can take to avoid probate is to ensure your beneficiaries are up to date regarding any life insurance policies and retirement accounts and that remaining assets are properly titled—as these designations often supersede a will. Adding a will can help expedite the probate process for any personal belongings passed down to heirs, and while a trust isn’t for everyone, you should consider this option for various reasons: such as sparing your heirs the hassle of probate.

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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.

Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.