How To Avoid Probate Court

Should I plan to avoid probate? Probate rarely benefits your beneficiaries, and it always costs them money and time. Probate makes sense only if your estate will have complicated problems, such as many debts that can't easily be paid from the property you leave. Whether to spend your time an d effort planning to avoid probate depends on a number of factors, most notably your age, your health and your wealth. If you're young and in good health, adopting a complex probate-avoidance plan now may mean you'll have to re-do it as your life situation changes. And if you have very little property, you might not want to spend your time planning to avoid probate. Your property may even fall under your state's probate exemption; most states allow a certain amount of property to pass free of probate, or through a simplified probate procedure. But if you're in your 50s or older, in ill health or own a significant amount of property, you'll probably want to do some planning to avoid probate. Enter the Revocable Living Trust... In our example, Mom should establish a revocable living trust, naming herself as both trustee (to retain control over the assets she places in the trust) and beneficiary (during her lifetime), and naming Ann as the beneficiary upon her death. Revocable means Mom can put assets into the trust and take them out at any time. Living means this trust is in effect only during Mom’s lifetime, and Trust means the assets are owned by the trust, not by Mom. Because the house is owned by the trust, not by Mom, it does not go through probate when Mom dies, but passes directly to Ann (the beneficiary). Because the house is worth less than $2,000,000, there is no estate tax, and because Ann inherits the house at the stepped-up basis of $180,000, there will be no capital gains tax when she sells it for that amount, either. Thus, the revocable living trust allows Ann to inherit the house without probate and without taxes. This illustrates how the easy solution (in this case, joint ownership) often is the wrong solution, and why proper estate planning is critical.