Avoiding the headache of probate
January 1, 2017
Losing a loved one can be tragic and heartbreaking. After the loss you may have to transfer your loved one's accounts, property and investments to their heirs. Finding out your loved one died without a will can be an unwelcome headache. Many people are relieved if they find a will; however, a will is often not enough to avoid the migraine of probate. If you want to avoid the migraines caused by probating your estate, you need to do additional planning.
Probate is the court-supervised process for collecting all the decedent's assets, paying all of his or her outstanding debts and bills, and then distributing the balance to their heirs. In Nevada, probate proceedings start as low as $25,000.00 in assets. In our experience, a plan that relies upon probate may be preferable in limited circumstances including those where the decedent is leaving immense debt or liabilities or where the heirs are likely to engage in something akin to World War III.
There are several types of plans, however, that you can use to avoid probate.
■ Gift property to or hold it in joint tenancy with the intended beneficiaries of your estate before death. Unfortunately, gifting your estate can be disastrous and can have serious tax consequences for the recipients of the gift. Furthermore, transferring assets away can have serious repercussions if doing so leaves you insolvent, without funds to pay for medical care, and subject to penalties from government agencies so that you do not qualify for assistance. Don't consider this option without the advice of legal and financial professionals.
■ Establish a trust to hold assets for distribution to beneficiaries after you have passed. To work, the trust agreement must be drafted and signed, then all property transferred into the name of the trust. Unfortunately, many who establish trusts fail to follow through with transferring all of their assets into the name of the trust. Properly titling assets in the trust, or designating the trust as the pay-on-death beneficiary, is vital to having a trust plan work. If assets are left outside of trust, depending on their value, the property may need to be probated. If you have a trust, we suggest you review whether your property is properly titled. This time of year, when tax statements are issued, is an excellent time to double check trust funding.
■ Use pay-on-death designations to transfer property. This type of plan works best when there is only one or two individuals that will be receiving your assets, and those people can work together even in the direst of circumstances. While this can be easiest of all the options to administer, a pay-on-death plan takes quite a bit of work to setup and to maintain. This type of plan requires designation of a primary and secondary beneficiary on each account or asset; upon death, that person will need to present a death certificate and the bank will distribute the asset directly to the beneficiaries.
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Even though all assets can be addressed with this type of plan, it is still necessary to sign a last will and testament in case there is an account or asset that was overlooked or frozen by the bank. Your will also states who is in charge of your estate when you pass, how personal property should be distributed, and can include directions for your burial or cremation.
The advantage of this type of plan is that administration is simple. For the most part transfers are made by third parties to those individuals named in the transferring document. There is little chance for any type of action or contest to be initiated and allegations of impropriety regarding administration of the estate are generally completely avoided.
The major disadvantage to a pay on death plan is it is inflexible. Where trusts and wills allow for changes in circumstances, such as where an intended beneficiary of your estate has predeceased you, most transfer at death documents cannot. Further, pay-on-death transfers result in the heir receiving the asset outright. Such a transfer will not protect your beneficiary from bad-acting or ex-spouses, creditors or the government. If your beneficiary is receiving any government assistance such as disability or Medicaid the pay-on-death distribution will count against an individual's qualification.
The best decision is an informed decision. If avoiding probate is the goal don't cause unnecessary headaches for your family by establishing a plan without fully investigating which type of plan is the best for you.
Cassandra Jones and Michael Millward are the attorneys of Heritage Law Group, P.C. Both are residents of Gardnerville, focusing their law practice on estate planning, business planning, and probate. They can be reached at 782-0040 or http://www.HeritageNevada.com.