Probate is the legal process of estate administration. If you arrange for the distribution of your personally owned property through the terms of a last will, the probate court would provide supervision. Creditors are given an opportunity to come forward seeking satisfaction during probate and interested parties would have the opportunity to challenge the validity of the will.
This process serves a purpose, but it is not necessarily positive for the rightful heirs to an estate. In Indiana, it will take six months to a year to probate an estate, and the executor may not be able to distribute inheritances during this interim. Considerable expenses can accumulate during probate as well, and this reduces the inheritances that will be received by the heirs.
Another negative that goes along with the probate process is a loss of privacy. Since it is a public proceeding, the records are available to the general public. As a result, people can find out how you decided to distribute your resources. This loss of privacy can be disconcerting in a general sense, but the information can potentially cause hard feelings among family members and others.
Probate-Free Asset Transfers
There are some types of asset transfers that are not subject to the full probate process. In the state of Indiana, there is a simplified probate procedure for relatively small estates. This can be utilized if the estate has a value of $50,000 or less.
If you have a life insurance policy, the named beneficiary will receive the proceeds after you pass away. The transfer would not be subject to probate. An individual retirement account would also be passed along to the named beneficiary in a probate-free manner.
When you open an account at a bank or a brokerage, you can add a beneficiary. This person would not be able to touch the funds while you are alive.
After you die, the beneficiary would obtain a death certificate and present it to the financial institution. If everything is in order, the beneficiary would assume ownership of the account, the probate court would not be involved.
Joint tenancy is the condition of co-ownership of property, and it comes with right of survivorship. To explain through the utilization of a simple example, let’s say that you add your son to the title or deed of your home as a joint tenant. At the time of your death, he would assume sole ownership of the home, and the transfer would take place outside of probate. Another option is to execute and record a Transfer on Death deed (TOD). A TOD deed allows Indiana real estate owners to maintain full control and ownership during their lifetime, but avoid probate at death. Upon the owner’s death, the property passes automatically to the beneficiaries named in the deed.
Revocable Living Trusts
When it comes to transfers that would be subject to probate, you can proactively implement a probate avoidance strategy to get around the drawbacks that we touched upon in the opening. A revocable living trust is the ideal tool for probate avoidance. If you establish a revocable living trust, you can act as the trustee and the beneficiary while you are alive. As a result, you retain full control of the property that you convey into the living trust.
In the trust declaration, you name a successor trustee to assume the role when the time comes, and you name your heirs as successor beneficiaries. You can name someone that you know personally to act as the successor trustee, and there are also professional fiduciaries that offer trustee services.
The trustee would be able to distribute assets to the beneficiaries in accordance with your wishes free of the probate process. Probate avoidance is one benefit that a living trust provides, but there are others. We will look at them in a future blog post.
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