After your passing, your loved ones will understandably struggle with their grief. They might face additional struggles if your estate is tied up in probate, forcing them to deal with months of stress, loss, and loose ends rather than the legacy you wanted to leave. Smart estate planning allows you to spare your loved ones from this ordeal, but you must know how to avoid probate.
Here is a quick guide to some simple solutions that will make leaving a legacy much easier for all parties involved.
Get Started Early
It is never too early to start thinking about the future—even if it is a future without you in it. You can start to create a solid financial plan right now with the help of a trusted fiduciary. Not only can you avoid probate with the right arrangements, but you can also reduce tax liability and create stability for your dependents well after you are gone.
You might not think you need an estate plan right now, but this is an absolute must if you do not want your loved ones arguing it out in probate.
Designate Beneficiaries
Nothing is more confusing than having a bunch of investment accounts, retirement accounts, life insurance policies, and more without a beneficiary. This is your time to be perfectly clear on who you want to benefit from these assets after your passing. When you have named a beneficiary, it will be hard to argue that one person deserves a greater share or should be the sole recipient of these benefits. Beneficiary designations supersede the will, and do not go through probate.
These arguments are some of the most common that spring up during the probate process. Not only are they difficult to endure, but they can cause lasting rifts in your family. This clarity about who should receive allows many families to bypass these situations.
Set Up Trusts
One of the best ways to see financial benefits now while avoiding probate later is to set up a trust for your beneficiaries. An irrevocable trust allows you to protect your assets from creditors and pushy family members while bestowing your gift upon the person you want to receive it.
It can be revocable for now, meaning you can make changes as you see fit during your lifetime. They will then convert to irrevocable trusts upon your death, or you can set them up this way at the outset if you do not want to make any changes in the future.
A charitable remainder trust is another way to protect your assets and preserve a legacy for your name. A CRT allows you to name a beneficiary (or several) who will receive an income from the trust. Then, the remainder of the trust funds are gifted to a qualified charity (or several) of your choice (with a minimum of ten percent donated).
Both irrevocable trusts and charitable remainder trusts allow you to take some tax benefits here and now and protect your finances well into the future.
Gift Assets During Your Lifetime
Another clever way to avoid probate is to simply reduce the value of your estate over time. Some people may want to see their loved ones enjoy their gifts, and this enables you to do just that. All you have to do is make gifts to your loved ones of either assets or cash. You will have less in your estate at your passing, your loved ones will enjoy it sooner, and there will be no arguing.
This is a great time to start thinking about how far you want your legacy to go. For example, you could make contributions to a grandchild’s 529 plan to prepare for their future education.
You can also reduce your estate by donating to charity. If you are unsure where your gift will make the most impact, you can give to a donor-advised fund that allows you to parse the money out over time while taking a tax benefit in the current year. A charitable remainder trust is another way to give if you know your preferred charity.
Establish Joint Ownership
Joint ownership is an option if you want someone to claim an uncomplicated gift. This is great for spouses who want to avoid the probate process, where other relatives might try to interfere with your plans. Nobody has to argue their right to the contents. In most cases, ownership will automatically transfer to the surviving owner.
Simply keep in mind that joint ownership may come with some risks in the present. For example, your joint owner will have equal rights to withdraw money or make changes to the accounts over which you have granted them access. You may also be foregoing creative tax planning since some assets receive a step up in cost basis at death.
Use Transfer-on-Death Instruments
Instead of joint ownership, some people prefer the finality of a transfer-on-death instrument. These accounts, sometimes called payable upon death, will give a designated person access to your accounts or policies when they can provide the death certificate. They get many of the same benefits as joint ownership with one major difference: they do not have access to the accounts while you live.
If you fear that a loved one may try to seize control of your assets to squander them while you still need them, this is a safer option. We’ve seen where easy access to assets can create a self-styled “loan.”
Transfer-on-death options extend beyond just bank accounts, though. You can also use them for securities, automobiles, and real estate. They serve as a very cut-and-dry way to prepare assets for your beneficiary without going to probate.
Start Estate Planning with Magellan
If you want to start estate planning now so your loved ones can avoid probate, Magellan has the needed services. We provide comprehensive estate, financial, legal, and tax planning with the skills to help you establish a charitable remainder trust for your beneficiaries. Consider us your one-stop shop to get your affairs in order. Reach out to us today to learn more!
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer's official statement and should be read carefully before investing.
Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investment in any state's 529 Plan.
Generally, a donor advised fund is a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization, which is called a sponsoring organization. Each account is composed of contributions made by individual donors. Once the donor makes the contribution, the organization has legal control over it. However, the donor, or the donor's representative, retains advisory privileges with respect to the distribution of funds and the investment of assets in the account. Donors take a tax deduction for all contributions at the time they are made, even though the money may not be dispersed to a charity until much later.
This material provided by Kevin Meaders was written by Axle Eight, a non-affiliate of Magellan Planning Group and Cetera Advisor Networks LLC.