A common mantra during estate planning is to avoid probate. Yet many people do not understand the probate process or why it’s smart to avoid it through proper planning.
The probate process
Probate is the legal process of administering an individual’s estate after he or she dies. The process includes proving, or validation of, a will, appointing an executor or administrator of the estate, distributing the individual’s property, and allowing creditor’s to state their claims to assets.
The probate process can be complicated and orderly but can take a long time and incur significant expenses. For example, the personal representative is likely to require legal guidance to properly carry out their duties, and estate administration costs can consume money out of the estate that would otherwise have passed to the named beneficiaries.
Why steer clear of probate?
While probate could be advantageous for a select few estates, good reasons often exist for avoiding it, including:
- The process ties up assets for a set period of time, and may take months afterward to transfer title to the decedent’s assets to beneficiaries.
- Probate can be expensive, as much as 5% to 7% of the total value of the estate.
- Probate is public court process, meaning private family matters become public record.
- If a family member or beneficiary challenges the validity of the will in probate, the resulting litigation can be expensive and harm family relationships.
- Kentucky inheritance taxes may be incurred for some transfers, again reducing the size of the estate.
Estate planning to sidestep probate
Staying out of probate is an important goal of many estate plans, especially for families with large estates, history of family conflict, or a desire for more privacy. Techniques for avoiding probate are many and varied, but all https://www.lockabylaw.com/estate-planning/have one function – to transfer ownership of each item of the person’s real or personal property to their desired beneficiary outside of a will – either during the person’s life or at death.
During life, instead of leaving an inheritance to someone via a will, a person may give property or money to others as gifts. People of wealth, however, must obtain professional tax planning services to minimize federal gift, estate, and generation-skipping tax liability.
Other common ways to transfer wealth or property to another person outside of probate include:
- Living trusts
- Payable-on-death or transferrable-on-death accounts
- Beneficiary designations on life insurance, retirement accounts, annuities, and other eligible instruments and accounts
- Adding co-owners to bank accounts and other accounts
- Retitling real estate into joint ownership or using deeding techniques to automatically transfer the property to another upon death
This is only an introduction to a multifaceted estate planning topic. Every Kentucky estate is unique and should be carefully analyzed with a legal professional, including careful tax planning.