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QUESTION: WHAT IS "PROBATE" AND HOW CAN IT BE AVOIDED?
ANSWER: Probate is the court proceeding used to prove the validity of a will; to vest a representative with power to pay or contest claims; and to transfer title of probate assets to beneficiaries. (If a decedent owned property in more than one state, two probates may be necessary.)
During probate, the executor will gather and safeguard estate assets. The executor also will use estate assets to pay valid claims, such as funeral expenses. The executor must publish notice of the probate to inform all possible creditors, and must directly notify known creditors. Creditors then have six months to file claims. To close the estate, the executor must submit a final report for the court with receipts from the beneficiaries who received assets.
In some cases, probate can be very beneficial. It demands that certain matters be concluded within certain time periods. For example, if anyone seeks to contest the will or to file a claim, they must meet the deadlines or their rights are extinguished. This is valuable when the decedent owned a business or has uncooperative beneficiaries.
Many people prefer that their estate not go through probate because of the cost and the minimum six month delay before final distribution can be made. The cost of a probate, including attorneys' fees, is approximately $4,000.00, and can be much higher. In order to avoid probate on your assets after your death, you can title them in such a way that they will transfer automatically at your death. If you use these tools effectively, no assets will require probate.
Ways to title assets to avoid probate:
1. Joint tenancy: This works well for spouses on all assets, including the residence. However, when an unmarried person names a child or friend as joint tenant, he subjects that asset to the claims of the joint tenant's creditors. The probate avoidance benefit is usually outweighed by the risk of losing the asset.
2. Beneficiary designations. These work well on financial accounts including IRA, 401(k), pension or life insurance, unless any beneficiary is too young to receive their inheritance, or is a disabled person on government assistance. In that case a living trust or special needs trust should be considered.
3. Land Trust. For real estate, a land trust can be set up at a bank or trust company, naming a contingent beneficiary. Land trusts avoid probate, but they only can hold title to real estate, and are charged a yearly fee.
4. Transfer on Death Instrument. For Illinois residential real estate, a "TODI" is executed and recorded now, but only transfers title after your death. The TODI avoids probate and does not subject the real property to a joint tenant's creditors. A drawback, though, is the inability of anyone to step in and manage or sell the property for your benefit if you become disabled.
5. Small Estate Affidavit. This is used after death if your total probate assets' value is under $100,000.00. This tool works on all assets EXCEPT real estate. If the residence avoids probate using a different method, this affidavit often can be used to transfer the remaining property, including bank accounts.
6. Living Trust. This is a trust created now, into which your assets are transferred. Trust assets avoid probate because trusts don't die. The living trust allows the successor trustee to manage assets for your benefit during your lifetime if you become disabled, and to distribute them after your death, according to your instructions. It allows you to set forth a delayed distribution for young beneficiaries; and it allows certain special needs planning.
NOTE: these probate avoidance techniques override any gifts made in a Will.
NOTE WELL: Probate avoidance is only one concern in estate planning.
Note: This column provides general information related to the law designed to help readers understand their own legal needs. This column does not provide legal advice. Please consult a lawyer if you want legal advice. No attorney-client or confidential relationship exists or will be formed between the reader and the author of this column.
QUESTION: WHAT IS "PROBATE" AND HOW CAN IT BE AVOIDED?
ANSWER: Probate is the court proceeding used to prove the validity of a will; to vest a representative with power to pay or contest claims; and to transfer title of probate assets to beneficiaries. (If a decedent owned property in more than one state, two probates may be necessary.)
During probate, the executor will gather and safeguard estate assets. The executor also will use estate assets to pay valid claims, such as funeral expenses. The executor must publish notice of the probate to inform all possible creditors, and must directly notify known creditors. Creditors then have six months to file claims. To close the estate, the executor must submit a final report for the court with receipts from the beneficiaries who received assets.
In some cases, probate can be very beneficial. It demands that certain matters be concluded within certain time periods. For example, if anyone seeks to contest the will or to file a claim, they must meet the deadlines or their rights are extinguished. This is valuable when the decedent owned a business or has uncooperative beneficiaries.
Many people prefer that their estate not go through probate because of the cost and the minimum six month delay before final distribution can be made. The cost of a probate, including attorneys' fees, is approximately $4,000.00, and can be much higher. In order to avoid probate on your assets after your death, you can title them in such a way that they will transfer automatically at your death. If you use these tools effectively, no assets will require probate.
Ways to title assets to avoid probate:
1. Joint tenancy: This works well for spouses on all assets, including the residence. However, when an unmarried person names a child or friend as joint tenant, he subjects that asset to the claims of the joint tenant's creditors. The probate avoidance benefit is usually outweighed by the risk of losing the asset.
2. Beneficiary designations. These work well on financial accounts including IRA, 401(k), pension or life insurance, unless any beneficiary is too young to receive their inheritance, or is a disabled person on government assistance. In that case a living trust or special needs trust should be considered.
3. Land Trust. For real estate, a land trust can be set up at a bank or trust company, naming a contingent beneficiary. Land trusts avoid probate, but they only can hold title to real estate, and are charged a yearly fee.
4. Transfer on Death Instrument. For Illinois residential real estate, a "TODI" is executed and recorded now, but only transfers title after your death. The TODI avoids probate and does not subject the real property to a joint tenant's creditors. A drawback, though, is the inability of anyone to step in and manage or sell the property for your benefit if you become disabled.
5. Small Estate Affidavit. This is used after death if your total probate assets' value is under $100,000.00. This tool works on all assets EXCEPT real estate. If the residence avoids probate using a different method, this affidavit often can be used to transfer the remaining property, including bank accounts.
6. Living Trust. This is a trust created now, into which your assets are transferred. Trust assets avoid probate because trusts don't die. The living trust allows the successor trustee to manage assets for your benefit during your lifetime if you become disabled, and to distribute them after your death, according to your instructions. It allows you to set forth a delayed distribution for young beneficiaries; and it allows certain special needs planning.
NOTE: these probate avoidance techniques override any gifts made in a Will.
NOTE WELL: Probate avoidance is only one concern in estate planning.
Note: This column provides general information related to the law designed to help readers understand their own legal needs. This column does not provide legal advice. Please consult a lawyer if you want legal advice. No attorney-client or confidential relationship exists or will be formed between the reader and the author of this column.
