When most people think about estate planning, the first thing that comes to mind is a will. A will is a document that lets you inform the court of your wishes after you die. However, having a will does not avoid probate. This blog post will examine why to avoid probate and how to do it!
The Probate Process
In North Carolina, a deceased person’s assets generally go through a court-ordered probate process.
When you pass away, family members go through probate law processes to claim their inheritance. Probate happens if you own property (like a house, car, bank account, investment account, or other assets). Assets such as personal property, jewelry, furniture, electronics, and more go through probate also.
However, estates valued less than $20,000 for a single person ($30,000 for a couple) can go through a small estate affidavit process in North Carolina instead of a probate process.
Probate law orders a court process where a judge appoints an executor (named in your will) or a probate administration person to inventory your estate. The executor values your assets and considers your debts.
After the court receives the inventory, the appointed executor pays your debts and settles your estate.
A common misconception is that your heirs will inherit assets named in the will immediately after death. However, this is not the case. The executor must pay all estate creditors and settle any income or estate taxes before distributing assets.
Although having a will is a good basic form of planning, a will does not avoid probate. Instead, a will lets you inform the probate judge of your wishes. However, your loved ones still must go through the probate process to make those wishes legal.
Naming Your Beneficiaries Can Avoid Some Probate
Keeping your money and property out of probate involves different legal processes, such as establishing joint ownership of bank accounts and real estate titles and designating beneficiaries for life insurance policies.
Leaving assets to heirs by naming designated beneficiaries lets assets immediately transfer ownership upon the owner’s death.
Experts recommend several approaches based on NC probate code to help family members bypass probate and automatically inherit assets. These strategies include assigning a named beneficiary to accounts and property in the ways listed here:
- Life insurance passes to named beneficiaries
- Retirement accounts pass to named beneficiaries
- Payable-on-death savings accounts or checking accounts: Financial institution funds pass directly to your beneficiary designations.
- Brokerage accounts allow you to buy and sell your investments. An investment account can include stocks, bonds, mutual funds, and ETFs. Assigning beneficiaries to these accounts can also help you avoid probate.
- Transfer-on-death deeds for real property. Transferring title to real property causes it to step up in basis to the fair market value at the owner’s death. So passing property in this way doesn’t cause your heirs to pay capital gains taxes. However, if you transfer the title before death, the new owner will pay capital gains taxes if they sell later.
- A joint owner with “Joint tenants with right of survivorship” status. A joint tenancy does not always lead to the inheritance of the real property. You must ensure the property has a joint tenancy with the right of survivorship for it to pass to your joint tenant.
- Surviving spouse with “tenancy by the entirety” status. In North Carolina, spouses holding property jointly each own 100% of the real property, so a surviving spouse immediately inherits the real estate. However, states with community property laws may differ.
- Trust beneficiaries never go through probate. Assets pass directly to beneficiaries upon death. Assets may include real property, personal property, retirement accounts, and other valuable property.
Why Would I Want My Family to Avoid Probate?
It’s All Public Record
Almost everything that goes through the courts, including probate, becomes a matter of public record. T
o properly wind up your affairs, the probate process must pay your bills, file any remaining tax returns, and distribute your money and property to your chosen recipients. Documents, including associated family and financial information, could become accessible through the probate process to anyone who wants to see them.
Your account numbers and Social Security numbers won’t generally become public knowledge. The courts take some steps to reduce the risk of identity theft.
However, the public nature of the probate process means that the following information is readily available to those seeking it:
- Value of your assets: accounts and property
- Any creditor claims, how much you owe in debts
- Identities of your beneficiaries
- Contact information for your loved ones
- Family disagreements that affect the distribution of your property and assets
Most people prefer to remain private, and the best way to ensure discretion is to keep your affairs out of probate altogether.
The Expense of Probate Court
Thanks to court costs, attorney’s fees, executor fees, and other related expenses, the price tag for the probate process can easily reach into thousands of dollars, even for small or straightforward matters.
These costs can quickly skyrocket into the tens of thousands or more if family disputes or creditor claims arise during the process.
Your assets should go to your loved ones, not courts and legal fees! Careful planning can act as an “ounce of prevention” and minimize the risk of costly conflict!
With an estate plan that includes a trust and pour-over will, none of your assets will see the probate court. Planning well can reduce or eliminate probate costs.
If there is no probate case, there will be no probate filing fees or court costs and you can rest easy.
Wasting Valuable Time in Probate
While the time frame for probate for an estate can vary widely by state and by the value, amount, and complexity of the deceased person’s accounts and property, probate is not generally a quick process.
It is not unusual for probate processes, even seemingly simple ones, to take six months to a year or more. During this time, your beneficiaries may not have easy access to the assets you intended to leave them.
A probate delay can be especially difficult for loved ones experiencing hardship who might benefit from a faster, more straightforward process. One simpler process is using a living trust to bypass probate entirely.
Bypassing probate can significantly expedite the disbursement of assets so that beneficiaries can benefit from their inheritance sooner.
If you have property in multiple states, your family must go through the probate process for each state where you hold property. This repetition can cost your loved ones even more time and money.
Avoiding Probate Entirely
The good news is that you can avoid probate in all states with proper trust-centered estate planning! Using a trust process simplifies the transfer of your financial legacy and provides your family with lifelong tax savings and asset protection.
Ideally, when someone passes away, the administrative processes fade into the background, allowing the family and other loved ones to grieve and remember the deceased in peace.
Estate planning is about passing legacies to the next generation in a harmonious, stress-free, fair process. Many individuals strive to avoid burdening their loved ones with the complications and costs involved with probate.
Setting up a revocable living trust is often the best, most comprehensive option for avoiding probate.
What is a Trust?
Often touted as an alternative to a will, a trust is a legal structure that owns your accounts and property. It can also be the beneficiary of an account. When drawing up a trust, you name a trusted decision maker, a trustee, to handle the estate on your beneficiaries’ behalf.
You can establish a living trust while you are alive instead of creating it upon death. You can be the trustee for your own living trust until you can no longer manage your financial affairs or you pass away.
At that point, your chosen backup trustee, also known as a successor trustee, assumes the responsibility for managing the trust on your or your beneficiaries’ behalf.
How Does a Trust Help You Avoid Probate?
The purpose of probate is to transfer property ownership for all accounts and property that do not have a beneficiary, pay-on-death, or transfer-on-death designation when you pass away.
A trust can bypass the probate process entirely because your trust owns your accounts and property. You can transfer assets into your trust by naming your trust as the beneficiary at your death. A “pour-over” will sends your assets into the trust at death.
At death, nothing needs to transfer by the probate process. Everything is already in your trust or transferred to the trust automatically at your death.
Furthermore, a trust can hold virtually any type of account or property, from real estate to heirlooms to stock to bank accounts. When your estate planning attorney structures your trust correctly, your affairs can stay out of probate court entirely.
A trust not only limits court costs but also maintains the privacy of your financial records while enabling your beneficiaries to enjoy the benefits of the trust without disruption or delay.
A trust can be your best option for avoiding probate later. It can be the key to effective planning that minimizes the likelihood of a drawn-out, contentious, expensive probate process.
Our Experienced Estate Planning Attorneys Can Help
At Vail Gardner, our experienced estate planning attorneys will be happy to strategize with you to write a last will and testament in addition to considering ways to avoid probate for your estate. We consider the North Carolina legal process as we help draw up an estate plan that best suits your unique circumstances.
Give us a call today to learn more about next steps for achieving the peace of mind you deserve.