Avoidance of Probate

Probate can be time consuming – on average between 4 to 9 months, even for ‘routine’ estates. As well, going through probate costs money. Your estate will be required to pay attorney's fees, appraiser's fees, court costs for filing papers, and bonding fees for the executor. The total expense can add up to 5% of the value of the estate. Thus many estate planners advocate measures that reduce if not eliminate entirely the amount of probateable property in an estate. Property that passes directly to your heirs outside of your will is not subject to probate. Following are some of the more popular means of removing property from your will to avoid probate:

1.Property In aTrust - Revocable living trusts or inter-vivos trusts are a popular means of bypassing the probate process. Assets in a trust go directly to your beneficiaries without the delay of probate. You can retain control of the property in a trust during your lifetime by naming yourself as trustee. Because such assets are not part of a will, they are not a matter of public record and are much harder to dispute in court. Property passed in trust is still subject to federal estate taxes.

2. Payable-on-Death Accounts - One of the easiest to implement probate-avoidance maneuvers, payable-on-death bank accounts allows you to keep whatever sums of money you wish out of the probate process. You simply fill out a bank-supplied form naming the person you wish to leave your money to when you die. You retain full control over the account(s) during your life. At your death your beneficiary needs only go to the bank, show proof of death and personal identification to collect whatever funds are still in the account.

Some states (California, Connecticut, Kansas, Missouri, Ohio) offer a transfer-on-death registration for vehicles. Car owners can obtain a certificate of ownership in ‘beneficiary form’. The person named as beneficiary will be granted automatic ownership of the vehicle at your death.

3. Tax-Free gifts - If you don’t own it – it’s not in probate. As of 2004 you can give your heirs up to $11,000 (indexed for inflation in future years) per person each year without incurring the gift tax penalty. Reducing the size of your estate can lower overall probate costs because, as a general rule, the higher the value of the assets that go through probate, the higher the expense. You might even qualify for the simplified court procedures for smaller estates.

4. Contractual Beneficiary Designations - Insurance policies, IRAs, 401(k), annuities and similar retirement accounts specify a beneficiary. These types of accounts pass directly to the person named regardless of any provisions made in a will, and bypassing the probate courts. Make sure the beneficiary named is not your estate – in that case the assets will be subject to probate.

5. Joint ownership - Property owned in joint tenancy automatically goes to the surviving owner(s) bypassing the probate courts. Joint tenancy is often used by couples to share ownership of real estate, securities, bank accounts and other valuables. Keep in mind however that joint tenancy involves giving up exclusive ownership of property. The new owner has rights that you can't take back. For example, the new owner can sell or mortgage his or her share -- or lose it to creditors.

-Tenancy in entirety is a form of joint ownership that is accepted in 24 states. Tenancy in entirety requires the partner in ownership, who must be a spouse, to get permission from the other partner before disposing of his or her share of the property. In addition, there is right of survivorship upon the death of one partner. In other words, sole ownership of the property reverts to the survivor after the other partner dies.

-Tenancy in common is a form of joint ownership in which two or more people share in the ownership of a piece of property, but not necessarily equally and without right of survivorship. In other words, one partner could own 55% of the property and the other partner 45%. When one partner dies, the property doesn't automatically revert to the other partner. Rather, the decedent's share can be willed to anyone he chooses. This form of joint ownership is often used by business partners as well as spouses who wish to leave their valuables to someone else.

-Community property is a form of joint ownership that is the law in the states of Arizona, California, Idaho, Louisiana, Nebraska, New Mexico, Texas, Washington and Wisconsin. If you are married and live in or own property in one of these states, rights of survivorship apply to all the property that was acquired during the marriage. When one spouse dies, the other automatically inherits the property without the necessity of probate proceedings.

See also: Types of Property Ownership . The way you hold title to your property can have a dramatic impact on your estate planning process.