5 Ways to Avoid Probate

The probate process has been known to be difficult and sometimes costly. Over time it’s become easier to navigate with state laws, exclusions and exceptions, especially for smaller estates, but those with large or complex estates may find it worthwhile looking into ways to avoid it for certain assets which can lead to a more simplified and sped-up probate process overall.

What Is Probate?

Probate is the process of validating a deceased person’s last testament through the judicial process. The proceedings can take up to several years (or longer if an extension is filed), and during that time the deceased’s assets are typically frozen until the process is complete. Since probate court uses government resources, it takes a certain percentage of the total estate value, typically between 3% to 7%.

Does a Will Avoid Probate?

Making a will is a great step towards passing along your assets and legacy to family members and loved ones. Most wills go through the probate process – usually much quicker than if you didn’t have one – but there are several steps you can take which could excuse you from the process. 

Exclusions are different in each state, but estates are often pardoned if the estate is valued under a certain amount, assets are jointly held and for additional exclusions, which are noted below.

Estate Planning Options to Avoid Probate

There are several estate planning measures you can take to avoid probate.

Revocable Living Trust

The easiest way to avoid probate is by creating a living trust. A living trust is an alternative to a will, and instead of your assets and property being disbursed after you pass, they are placed in a trust while you’re living. When placed, a trustee is assigned by you to manage the assets on behalf of your beneficiaries. 

With a living trust, you avoid court costs and fees associated with probate. Though there are trustee fees, it’s much less in comparison to probate.

Joint Tenancy with Rights of Survivorship

It’s quite common to own property jointly with a spouse or business partner, whether it’s having both of your names on your home or business property. Having joint ownership not only balances the financial risk, but it also ensures that in the event one of you were to pass away, the other would then take possession of the property without it having to go through probate. Now if both owners were to pass at the same time, it would go through the process.

If you’re a surviving spouse or business partner and you’d like to pass your real estate on, it’s important to add a joint tenant in the event you pass away unexpectedly. This prevents your property from being held up in probate court, which could prevent your partner from keeping the business running until the probate process is complete. 

Name Beneficiaries on Accounts

If you have a small estate or simple assets, you may be persuaded to have a last will rather than a living trust. In that case, a step you can take to simplify the probate process is ensuring that all bank, retirement and life insurance accounts all have a named beneficiary. Having a named beneficiary or beneficiaries on your 401(k) plan, IRA accounts, life insurance policies, etc. voids them of having to go through probate. 

Payable-on-Death (POD) or Transfer-on-Death (TOD) Designations

Certain accounts may have asked you to list beneficiaries when setting up your account, but others like bank accounts or securities may have not. To add beneficiaries, you can either log on to your online account and look for the form in your profile, or submit a form request to set up a payable-on-death (POD) account. Depending on your state's laws, completing a beneficiary form ensures that your financial assets are payable upon your death. Certain states also permit transfer-on-death (TOD) designations for assets like vehicles and real estate. Keep in mind, if you hold assets with a spouse, they may be automatically transferred to them upon your death.  

Lifetime Gifts

Lifetime gifts are typically deemed private and do not have to go through probate, though it’s important to note that they are taxable if they exceed the lifetime gift tax exemption, which for 2023 is nearly $13 million. Keep in mind that this is scheduled to decrease to $6 million by 2026.

Sharing Your Legacy

Planning the future of your estate isn’t an easy job and isn’t one you should tackle alone. At Farm Bureau, we offer estate planning tools to help you protect your wishes and map out a future for your legacy. Connect with a Farm Bureau agent today to learn how we can help.