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When is Probate Not Necessary?

 

Negative stories about probate being time-consuming and costly are common. Fortunately, not all property has to go through probate before passing on to your heirs. So, when is probate unnecessary?

In general, probate is not required for a “small” estate or when the property is designed to pass outside of probate. This applies regardless of whether you have a will. Let’s explore each of these exceptions further.

Benefits of a Small Estate in Probate

Having a small estate offers advantages in the probate process, recognizing that the complexities of this legal procedure may be unnecessary for handling a modest estate. States often acknowledge that a simplified approach is suitable for estates below a specified value, allowing for the distribution of assets to beneficiaries without court involvement. For example, in California, estates valued at $150,000 or less might bypass court proceedings, while in Nebraska, the threshold is $50,000 or less.

Determining Small Estate Eligibility

  1. Calculate Individual Property Value: Sum the value of individual property, encompassing financial accounts, investments, business assets, and real estate. Personal belongings like electronics and artwork are also considered, excluding disposable items such as hat collections.
  2. Deduct Joint-Owned or Named Beneficiary Property: Assets with joint ownership or a designated beneficiary are excluded from probate. Only assets held solely in your name without a named beneficiary undergo probate.
  3. Know Your State’s Small Estate Threshold: Each state, along with Washington D.C., has probate laws dictating various aspects of estate planning. This includes determining the estate value requiring probate. Familiarize yourself with your state’s laws to understand the specific process.

Considerations and Prudent Actions

While small estate exceptions may seem beneficial, it’s essential to comprehend state laws and asset valuation. Opening probate, even when not mandatory, may be advisable, especially if creditor claims or beneficiary disputes arise. Understanding and navigating state laws can ensure a smoother process during the challenging time of losing a loved one. Avoid leaving critical matters to chance and take proactive steps in estate planning.

Property that Transfers Outside of Probate

Not all property is required to go through probate. That’s great news for beneficiaries since property that transfers outside of probate is allocated a lot faster. Assets that usually won’t go through probate fall under the following 3 categories:

  1. Co-Owned Property

The “right of survivorship” stays away from the probate process since ownership transfers instantly to the surviving owner(s) following a co-owner’s passing. There are few ways to jointly own property that establishes this right of survivorship comprising of:

  • Community Property is a property ownership form retained by a married couple that holds the right of survivorship. Be cautious, not every state acknowledges the kind of co-ownership produced by marriage or domestic partnerships.
  • Tenancy by the Entirety is the form of ownership only accessible to legally acknowledged couples. It works almost the same way as joint tenancy with a right of survivorship, in that in practical term upon the passing of one of the spouses, the surviving spouse receives the decedent spouse’s share.
  • Joint Tenancy with right of Survivorship with this form you remove property as “joint-tenants” and when the passing of a joint tenant happens, the living tenant receives the decedent tenant’s share.
  1. Designated Beneficiary

The designated beneficiary is the individual chosen to inherit an asset, like a bank account, or the capital from a life insurance policy. When you pass away, assets with a designated beneficiary will instantly transfer to the named individual. Designating a beneficiary to many of your accounts only requires just filling out a short form. Assets that can have a designated beneficiary comprise of:

  • Financial Institution Accounts declaring a POD beneficiary
  • Investment Accounts observing a TOD beneficiary
  • Any Retirement Accounts
  • Life insurance designating a beneficiary apart from the estate of the decedent
  • Vehicle or water craft registered in TOD form
  1. Trusts

Trusts serve the purpose of allowing your family, close friends, and charities you support to inherit from you without undergoing the lengthy and costly probate process. Various types of trusts exist for different purposes:

  • Revocable Trusts: Created during the individual’s lifetime, these trusts can be modified or terminated by the creator at any time.
  • Irrevocable Trusts: Once established, these trusts cannot be altered in any way. They are suitable for transferring larger estates and may provide tax-saving benefits.
  • Charitable Trusts: Formed during the grantor’s lifetime, these trusts function as financial planning tools. Typically, they offer the trust maker or their named beneficiary a lifetime of income, with the remaining assets directed towards charitable causes.

Want to Stay Away From Probate? Get a Free Case Assessment.

Probate may be an exhaustive financial drain on your estate and possibly cause your loved ones’ unnecessary distress. A knowledgeable attorney may assist you in drafting an estate plan that transfers your property devoid of all the headaches.

Source:

  1. When Is Probate Not Necessary? (2017, August 13). Retrieved December 29, 2020, from https://estate.findlaw.com/probate/when-is-probate-not-necessary.html

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