Creating a will is the first step to ensuring your assets are distributed to your loved ones according to your final wishes. And TV shows and movies would have us believe that your heirs receive their inheritance as soon as your will is read.
However, it could take months, or even years, before your estate is settled and your assets are distributed as you intended.
What is probate?
Probate is a legal process that takes place after a person dies. It involves:
1. Filing the will with the probate court, which will determine its validity
2. Appointing the executor named in the will (or in the case of no will, the court appoints an administrator)
3. Inventorying the deceased’s assets, including real estate, bank accounts, investments, personal property and other possessions
4. Notifying creditors and paying any outstanding debts from the estate’s assets
5. Filing and paying final federal and state taxes
6. Distributing the remaining assets to the beneficiaries specified in the will
Probate can be an expensive, time-consuming and public process. Therefore, many individuals seek ways to avoid it. Several methods are available, including:
- Tenancy by the Entirety: This is only available to married couples. When one spouse passes away, the surviving spouse automatically inherits the spouse’s share of the property.
- Joint Tenancy with Rights of Survivorship: Allows two or more people to own property together. When one owner dies, their share automatically transfers to the surviving owners.
- Revocable trust: This type of trust allows the grantor to control their assets while alive. Upon death, the assets within the trust bypass probate and are distributed according to the terms of the trust.
- Payable-on-death accounts (POD): Bank accounts can have designated beneficiaries. When the account holder dies, the funds transfer directly to the named beneficiary.
- Beneficiary designations: Retirement accounts, life insurance policies and certain investment accounts typically allow you to name beneficiaries who will receive the assets directly upon death.
Several options exist to avoid probate. Before making a decision, it’s crucial to review the advantages and disadvantages of each one.