You’ve spent much of your adult life building an estate and a legacy of which you should be proud. Now you may be thinking of how you can best transfer that estate to your loved ones after you pass away. Whether you’re transferring your estate to your children, grandchildren, other family members or even a favorite charity, you probably want them to receive as much of the assets as possible.
Unfortunately, there are a number of items and expenses that can erode your estate during the transfer process. One of the biggest is probate, which is the legal process for settling an estate. During probate, all debts are paid, heirs are identified, assets may be liquidated and assets are eventually disbursed.
There can be a number of expenses that pop up during the estate process. Probate often requires numerous court appearances and filings, many of which generate fees. There may be costs for things like tax preparation, asset valuation and even auction or sales costs. Your executor may need to be compensated for the time and expense they put into the settlement process.
Probate also costs time. The entire process can take months. In large, complex estates, it can take even longer. That could be a problem if your heirs need their money quickly or if a charity is relying on your donation.
The good news is you can utilize several different tools and approaches to minimize the effects of probate. Below are four options to consider as you plan to transfer your estate in the most cost- and time-effective manner possible.
1. Beneficiary designation
Anything with a beneficiary designation avoids probate. Instead, the beneficiary fills out a claim form and the asset administrator pays out a death benefit. Life insurance, IRAs, annuities and 401(k) plans have beneficiary designations.
You can also use a trust to take advantage of the beneficiary designation and avoid probate. You simply set up a trust with your estate planning professional, designate your trust beneficiaries and then change the title on the relevant assets so they are owned by the trust. Upon your passing, trust-owned assets will be transferred to the trust beneficiaries without going through the probate process.
2. Joint ownership
Another way to minimize the impact of probate is through joint ownership. When you have a joint owner on an asset, that asset automatically transfers to the other owner upon your death. It avoids probate and your other owner takes control of the asset immediately.
One thing to consider, though, is you will need to list the person as a joint owner before your death. That means they will have access to your asset while you are still alive. Clearly, your joint owner should be someone whom you trust.
Another option is simply to gift away assets before you pass away. By gifting your assets, you move the assets out of your estate and avoid the probate process completely. When you pass away, your heirs will already have their assets, so there’s little need for probate.
Another benefit to gifting is you get to see your heirs put the assets to use while you’re still alive. You may be able to watch them use your funds to start a business, go to college or pursue some other dream.
4. Life insurance
Finally, on some assets, there may be no reasonable way to completely avoid probate. However, you may be able to utilize life insurance to create some liquidity and help your heirs cover the costs of the settlement process.
If you’re in good health, you may want to consider a policy to help your heirs cover final expenses, as well as any outstanding debts, tax obligations, court fees, remaining medical bills and any other costs that could pop up in the settlement process. That way, they won’t be forced to liquidate assets and they will at least have some inheritance to enjoy while they wait for the probate process to be completed.
At Carstens Financial Group, we enjoy helping people just like you with figuring out how to best transfer their estate and their legacy to the next generation. You’ve worked hard to build your legacy. It should be distributed according to your plans, and it shouldn’t be consumed by unnecessary expenses.
Contact us today to discuss your estate and possible strategies. We welcome the opportunity to work with you.
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15618 – 2016/4/28
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