You hear a lot of talk about avoiding probate, and people who are first delving into the subject of estate planning invariably wonder what it is and why one would want to avoid it. Simply put, probate is the legal process of estate administration during which any claims against the estate are settled and the wishes of the deceased are carried out if they left a will. If they died intestate or without a will, the probate or surrogate court would oversee distribution of assets in accordance with the laws of the state.
That sounds simple enough, so why is there such an emphasis placed on avoiding this process? The short answer would be that there are two primary reasons why one would want to avoid probate: time and money. The process of probate can take anywhere from three to seven months as a typical matter of course, and even longer when the will is being contested or some other irregularities exist. It is also expensive because the estate must pay probate fees, there are attorney fees involved, and the executor or personal representative may charge a fee. Many estates require appraisers and tax professionals, and this too adds to the cost of probate. Depending on the details these expenses can reach up to 7% of the entire value of the estate.
Much of this can be circumvented in many cases via the use of pay on death accounts. With these bank accounts you simply name a beneficiary and the funds in the account will be transferred to this person upon your death. You can add multiple beneficiaries if you so choose, but there may be laws that govern the way you are allowed to divide it depending on where you live. You can also transfer securities upon death in the same manner, avoiding the hassle and expense of probate.
One of the overarching goals of estate planning is asset protection. You want your assets to retain their value as you pass them on, and pay on death accounts are a very simple way to facilitate cost effective and time efficient asset transference.