You have undoubtedly heard that it is always wise to include probate avoidance strategies in your comprehensive estate plan. The reason for this is simple – probate is costly process, both in terms of time and money. As a general rule, the larger and more complex your probate assets are, the longer it will take to probate your estate and the more assets will be lost paying for the expenses involved in the probate of your estate. Because every estate is unique, only an experienced New York estate planning attorney can advise you with regard to which strategies and tools for avoiding probate will work best in your estate plan; however, it may be beneficial to learn more about five commonly used strategies.
Creating a Trust
One of the simplest, and most commonly used, probate avoidance strategies is to create a trust. Assets held in a trust are not required to go through the probate process, making it an extremely popular addition to the average estate plan. Moreover, because the assets held in a trust are not required to go through probate, they will be available to your loved ones immediately if the trust terms allow disbursements immediately following your death. Although the basic concept of a trust is relatively simple, a trust agreement can become complex rather quickly which is why you should always work with your New York estate planning attorney when you create a trust.
Titling Property Jointly
Certain types of joint ownership can also help your estate avoid probate because your interest in the property will automatically transfer to the co-owner(s) upon your death, thereby eliminating the need for the property to pass through probate. The key is to make sure you are using the correct form of joint ownership. The State of New York recognizes three forms of joint ownership; however, only two of those can help with probate avoidance.
- Tenants in Common – this form of joint tenancy gives each owner a percentage share of the ownership in the property. Upon the death of an owner, the decedent’s share in the property becomes part of to his/her estate. Therefore, this type of joint ownership does not help with probate avoidance.
- Tenants by the Entirety – this type of joint ownership can only be used by spouses. Because it includes a right to survivorship, it effectively gives each spouse a 100 percent share in the property. Therefore, upon the death of one spouse, the decedent’s interest in the property passes directly to the other spouse. As such, this type of joint ownership does help with probate avoidance.
- Joint Tenants with Rights of Survivorship – this type of joint ownership is very similar to Tenants by the Entirety except that it can be used by anyone wishing to own property jointly. Also like Tenants by the Entirety, property owned as Joint Tenants with Rights of Survivorship is owned 100 percent by each owner. Upon the death of one owner, the decedent’s legal interest in the property passes directly to the remaining owner(s) automatically. Therefore, using this type of joint ownership also helps with probate avoidance.
Designating Accounts as “Payable on Death” or “Transfer on Death”
When an account is designated as a “Payable on Death, (POD)” or “Transfer on Death (TOD)” it means that ownership of the assets held in the account will automatically pass to the named beneficiary upon the death of the account owners without the assets becoming part of the probate of the decedent’s estate. Unlike joint ownership, a designated beneficiary of a POD or TOD account has no ownership interest in the assets held in the account prior to the death of the account holder. Typically, financial accounts, securities, and sometimes even vehicles can be designated at POD or TOD.
Making Use of Life Insurance Proceeds
If you want to ensure that your loved ones have immediate access to assets following your death, consider using life insurance proceeds. Unlike cash, securities, and other types of assets, proceeds of a life insurance policy are not required to be part of the probate of an estate.
Lifetime Gifting – The Annual Exclusion
Ultimately, the key to avoiding probate, or at least decreasing your estate’s exposure to the probate process, is to remove valuable assets from your estate prior to your death. The problem with simply gifting assets prior to your death is that the value of lifetime gifts is also subject to federal gift and estate taxation after your death. The annual exclusion allows you to make gifts valued at up to $14,000 to an unlimited number of beneficiaries each year without the gift being subject to taxation. Best of all, the value of annual gifts is not counted against your lifetime exemption limit for the purpose of calculating federal gift and estate taxes. The more assets you are able to transfer out of your estate the less assets remain to be probated, making the probate process shorter and less expensive.
If you have questions or concerns regarding how best to incorporate probate avoidance strategies into your estate plan, please join us for an upcoming free seminar or contact the experienced New York estate planning attorneys at The Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.