How to Avoid the Big Bad Wolf of Probate

by Dan A. Baron, Baron Law LLC

Perhaps you’re tempted to skip this article thinking that probate doesn’t affect you. But whether you have a comprehensive family trust or are just getting started with a basic estate plan, understanding and avoiding probate is paramount for each person considering the future for their loved ones. Probate is the legal process for administering a person’s estate, with or without a will. If you don’t have a will, or last will and testament, you may think there is no plan for your estate. But the reality is, the state would then have a plan for you. In addition, even if you have a plan using a will, your estate will still go through the probate court system. Therefore, it’s essential that you understand what probate is and what your options are.

Why is probate the Big, Bad Wolf?

1. Inefficient – Probate is extremely time consuming and inefficient. The minimum time to administer a single asset through probate court is six months. This is because creditors have six months to attach their interest on an asset through probate. In fact, one of the very reasons probate is in existence in the first place is so that creditors have a means of getting paid out of the estate. Moreover, the average time to administer an estate in the state of Ohio is 14 months.

2. Costly – Probate is expensive. The many fees of probate (court, attorney, filing, etc.) add up to 5-10% of the value of your estate, as estimated by the AARP. In other words, on the low (5%) end, if you have an estate with a house, retirement, and other assets totaling $500,000, your loved ones would lose at least $25,000 in probate costs.

3. Public – Since probate proceedings are part of a government court system, the entire process is public. This means that anyone can go online and search the docket for every probate matter filed today. In less time than it takes you to read this article, someone could deter- mine the value of assets in an estate, beneficiaries, executors, property listed, debt and more. Once they have this information, your loved ones are vulnerable to scams and hassles from creditors and scam artists.

4. No Asset Protection – The probate court serves two main functions, which are to pay creditors and make an outright distribution of whatever is left to beneficiaries. The court is impersonal, and cannot take into consideration important changes in relationships or financial challenges. Multiple factors – divorce, student loans, litigation, creditor issues, and/or spending issues – can impact the distribution of your hard-earned money. For all of these reasons, avoiding probate is a must.

So what can you do? What are some solutions to avoid probate? Is having a will a good form of estate planning, or is there a better option? The reality is that a last will is your one-way ticket to probate court. With the inefficiency, cost, publicity and weaknesses of probate, the following options are vital to protecting your loved ones.

Joint ownership

Joint ownership is the most common method of probate avoidance and does not require the help of an attorney or other professional. Assets owned by more than one person result in the survivor taking ownership. Joint ownership examples might include a joint bank account or marital home. This is significantly beneficial when avoiding probate for a residence because the transfer of assets is immediate and does not require a court-approved transfer. In lieu of a trust, the downside of joint ownership is that it does not offer asset protection. Creditors may still attach their interest in a residence or asset of a jointly held account.

Beneficiary designations

If you’ve ever purchased life insurance or engaged with a financial planner, you’ve probably filled out a beneficiary designation. These forms are very common with retirement accounts (such as a 401(k), 403(b), IRA, etc.), life insurance, annuities and other assets. Beneficiary designations are a great way to avoid probate and keep your estate private. Once again, however, the downside to beneficiary designations is that your assets are not protected against divorce, creditors or litigation. For example, if your children inherit an IRA, but then get divorced, the ex-spouse may receive half of the retirement assets.

Transfer-on-death

A transfer-on-death affidavit works just like a beneficiary designation. Here the TOD allows you to designate the person or entity to receive your assets upon your death. Just like a beneficiary designation, the TOD avoids probate while transferring assets swiftly and without court approval. This method saves time and cost for commonly titled assets like a home, automobile, boat, and other assets which hold title.

Family trusts

The single best way to avoid probate while also providing asset protection is by creating a family trust. A properly drafted family trust is completely private, avoids probate, provides asset protection and is advantageous for tax purposes. In addition to avoiding probate, if you are worried about a child getting divorced, concerned for a child with spending issues, or simply wanting to provide asset protection for your family, a family trust will accomplish all of the above.

Don’t let the Big, Bad Wolf blow your plan down

This brief article makes obvious the importance of avoiding probate. But what other plans should you be concerned about? Is your estate plan made out of straw (simple last will), wood (beneficiary designations), or brick (family trust)? For more information, contact Dan A. Baron or Baron Law LLC by phone at 216- 573-3723.

Dan A. Baron, Baron Law LLC

Sponsored By

Baron Law LLC
Crowne Centre, Suite #600
5005 Rockside Road
Independence, Ohio 44131
216-573-3723
www.baronlawcleveland.com

Opinions and claims expressed above are those of the author and do not necessarily reflect those of ScripType Publishing.