How Can You Avoid Probate in Your State?

October 27, 2016

One of the most common estate planning goals is to avoid probate, which is the process by which the court processes your estate. That’s because probate is public, can cost thousands of dollars, and can take months of time before your heirs inherit your property. Contrary to popular belief, having a will does NOT avoid probate. Having a living trust can help you avoid probate in most states, but these can thousands of dollars for an estate planning attorney to draft. Here are some lower cost way to avoid probate that may be available in your state:

Titling assets jointly with rights of survivorship: When you pass away, these assets will immediately pass on to the joint owner. However, be aware that this is essentially a gift to the joint owner, which means they (and their creditors) will have full legal access to it. In addition, the asset will go through probate when the joint owner eventually passes away as well.

Adding beneficiaries by contract: When you have a living beneficiary on a retirement account, life insurance policy, annuity, 529 or Coverdell education savings account, or health savings account, those assets will not go through probate. Unlike with joint ownership, the beneficiaries do not own the account until you pass away and you can designate contingent beneficiaries in case the beneficiary passes before or at the same time as you. In some cases, the beneficiary can also continue the tax benefits of these accounts. The downside is that this option is not applicable to other types of assets.

POD or TOD: By adding a “payable on death” (POD) designation on a bank account or a “transfer on death” (TOD) designation to an investment account, you can avoid probate on these assets as well. Some states will even allow you to add a TOD designation to a vehicle registration and to real estate (often known as a beneficiary deed). However, many institutions may charge a nominal fee or not even allow it at all. This also can’t be used for most tangible possessions like furniture, jewelry, artwork, etc. For those, you might need a trust.

Your choice isn’t just between paying thousands of dollars for a living trust or allowing your estate to go through probate. Check to see what other options are available in your state. It may not benefit you now, but your heirs will thank you.