Probate can require considerable time and expense, depending on the size of the estate. You can reduce or eliminate probate by eliminating assets that could find their way into your estate. Here are some techniques to consider to reduce or avoid probate costs.
Right of Survivorship
If you’re married, have the deed for real property in the name of you and your spouse. In most states, such a deed creates a “tenancy by the entirety.” The interest of each spouse cannot be divided during marriage. At the death of one spouse, the survivor becomes the sole owner of the property. Generally, the grantee space of most of these deeds takes the form “John Doe and wife (or spouse) Jill Doe.” Depending on your state, the grantees need only be married at the time of the transfer.
The joint tenancy with right of survivorship accomplishes the same result. To create such a tenancy, the deed or other instrument normally must state “with right of survivorship.” Otherwise, the decedent’s interest in the property becomes part of the decedent’s estate. Non-married joint owners may employ the right of survivorship for land. Married couples use it when dealing with personal property, such as cars, and bank accounts, or else the spouses’ separate interests can be included in a probate estate.
In a life estate, you make a deed to someone, but retain “lifetime rights” in the property. This means you have the right to possess and enjoy the property while you’re alive. Upon your death, the grantee receives a “remainder” interest and becomes the owner of all the rights to the property. Generally, as a “life tenant,” you must protect the grantee’s remainder interest by paying the property taxes and preventing deterioration to the property.
By gifting your property, you immediately part with all of your rights to the property. Avoiding probate this way requires careful planning. Specifically, you face federal taxes if you give more than $14,000 in any year, as of 2017. Also, these gifts are generally irreversible. You might want to check with a probate attorney like Leon J Teinchner & Associates, P.C. if you have questions about this.
In a living trust, you transfer your property to a “trust” in which you are the beneficiary for life. The trust document designates beneficiaries who receive or possess the property remaining in the trust at your death. Since the property is held by a trust, but not you, it does not become subject to probate.
Depending on your state, if you retain the right to revoke (or end) the trust, your creditors may have a right to be paid from the property of the trust on your death. Also, family members might have statutorily-created rights to allowances in the event of revocable trusts.
Transfer on Death
Many states afford a “Transfer of Deed on Death” to reduce or avoid probate costs. Here, you designate a beneficiary as owner upon your death. Unlike other approaches, you avoid gift taxes since you still own the property while you live. However, depending on the state, your creditors may reach it for claims filed within a certain time after your death.
The cost of probate may serve as an important, but not necessarily the sole factor in your estate plan. The ways to keep property out of your estate may carry tax consequences or affect your future property rights. An attorney can decide which of these approaches will protect you and your interests.
This article was written by Dixie Somers, a freelance writer who loves to write for business, finance, and family issues. She lives in Arizona with her husband and three beautiful daughters. You can find Dixie on Facebook.