As you help your parents with their estate planning, they may express to you a wish to avoid probate. The first thing to do is to consider the size of their estate. For smaller estates that have less than $100,000 in real estate or less than $75,000 overall, probate is not even necessary.
If the estate is over these lines, then probate is a potential option if your parent passes away with only a will. This can also be true if they pass away without any estate plan at all. In fact, avoiding probate is one of the main reasons that people finally decide to sit down and make their estate plan. What are some tactics you can use at this time?
Giving gifts in advance
One way that people keep assets out of probate is simply to give them as gifts before they pass away. If your parents simply start gifting to their children now, they may be able to reduce the value of their estate so far that it doesn’t need to go through probate. Even if they don’t get it down to that level, the assets that were given as gifts prior to their passing still won’t enter probate.
Putting assets in a trust
Another way to do this is to put assets into a trust. This allows them to skip probate because the trust is responsible for distributing those assets to the heirs. There are a lot of other reasons to use trusts, as well, such as putting certain restrictions on how they can spend the money or determining what age you want your heirs to be when they are actually given that money.
Setting up POD accounts
A third option is simply to use accounts that are payable on death. A common example is a life insurance policy, which doesn’t go into probate because it pays directly to the beneficiary as soon as the person who owns the policy passes away. But you can do the same thing with bank accounts and other financial accounts. Your parents could set things up so that, at the time that they pass, the account transfers directly into your name.
A complex process
As you can see, you have a lot of different options with estate planning and there are a lot of tools you can use to accomplish your goals. But it can get complex, so make sure you understand all of the steps to take.