Sidestep the probate process to avoid the public eye

Posted On: June 2020

Probate can be time consuming and expensive, and perhaps its biggest downside is that it is public. In fact, anyone who is interested can find out what assets you owned and how they are being distributed after your death.

In addition, because of its public nature, the probate process can draw unwanted attention from disgruntled family members who may challenge the disposition of your assets, as well as from other unscrupulous parties. Let us take a closer look at the details of the probate process and strategies available to keep much or even all of your estate out of probate.

Probate primer

For starters, be aware that probate is predicated on state law, so the exact process varies from state to state. This has led to numerous misconceptions about the length of probate. On average, the process takes no more than six to nine months, but it can run longer for complex situations in certain states. Also, some states exempt small estates or provide a simplified process for surviving spouses.

In basic terms, probate is the process of settling an estate and passing legal title of ownership of assets to heirs. If the deceased person has a valid will, probate begins when the executor named in the will presents the document in the county courthouse. If there is no will — the deceased has died “intestate” in legal parlance — the court will appoint someone to administer the estate. Thereafter, this person becomes the estate’s legal representative.

With that in mind, here is how the process generally works, covering four basic steps.

First, a petition is filed with the probate court, providing notice to the beneficiaries of the deceased under the will. Typically, such notice is published in a local newspaper for the general public’s benefit. If someone wants to object to the petition, they can do so in court.

Second, the executor takes an inventory of the deceased’s property, including securities, real estate and business interests. In some states, an appraisal of value may be required. Then the executor must provide notice to all known creditors. Generally, a creditor must stake a claim within a limited time specified under state law.

Third, the executor determines which creditor claims are legitimate and then meets those obligations. He or she also pays any taxes and other debts that are owed by the estate. In some instances, state law may require the executor to sell assets to provide proceeds sufficient to settle the estate.

Fourth, ownership of assets is transferred to beneficiaries named in the will, following the waiting period allowed for creditors to file claims. If the deceased died intestate, state law governs the disposition of those assets. However, before any transfers take place, the executor must petition the court to distribute the assets as provided by will or state intestacy law.

For some estate plans, the will provides for the creation of a testamentary trust to benefit heirs. For instance, a trust may be established to benefit minor children who are not yet capable of managing funds. In this case, control over the trust assets is transferred to the named trustee.

Finally, the petition should include an accounting of the inventory of assets, unless this is properly waived under state law.

Strategies to avoid probate

Certain assets, such as an account held jointly or an IRA for which you have designated a beneficiary, are exempt from probate. But you also may be able to avoid the process with additional planning. The easiest way to do this is through the initial form of ownership or use of a living trust.

In the case of joint ownership with rights of survivorship, you acquire the property with another party, such as your spouse. The property then automatically passes to the surviving joint tenant upon the death of the deceased joint tenant. This form of ownership typically is used when a married couple buys a home or other real estate. Similarly, with a tenancy by entirety, which is limited to married couples, the property goes to the surviving spouse without being probated.

A revocable living trust may be used to avoid probate and protect privacy. The assets are typically transferred to the trust during your lifetime, and managed by a trustee that you designate. You may even choose to act as trustee during your lifetime. Upon your death, the assets will continue to be managed by a trustee or, should you prefer, you may decide to have the assets distributed to your designated beneficiaries, outright, on your death.

Protect your privacy

The public nature of probate is a primary reason many wish to avoid the process to the extent possible. Implementing the proper strategies in your estate plan can protect your privacy and save your family time and money. Discuss your options with us.

© 2020