As you begin planning your estate, you may have heard the common warning from financial and legal experts about avoiding probate. But what exactly is the reason behind this advice?
Probate refers to the court-supervised settlement of your estate, which takes place after you are gone. This involves verifying your will, gathering your assets, paying debts and taxes and finally, distributing the remainder to your beneficiaries. While probate may seem straightforward, it can introduce some disadvantages that can impact the distribution of your assets when the time comes.
Probate’s hidden costs
When it comes to settling an estate, probate can be a complex and cumbersome process. Unfortunately, it can also have some drawbacks that can significantly affect your loved ones. These include:
- Financial burden: The probate process can impose a substantial financial burden on your estate. For instance, in California, the fees associated with probate can amount to 4% to 7% of the estate’s value, varying depending on the estate’s size and complexity. Other expenses, such as legal fees, appraiser fees and court costs, can further deplete the estate’s resources.
- Delays and uncertainties: The process can be slow and unpredictable, making it difficult for your family to access the assets they need to move forward.
- Loss of privacy: When your estate goes through probate, your personal and financial affairs become a matter of public record. This can be a concern for individuals who value their privacy or have sensitive information they would rather keep confidential.
Probate-proof your estate
One of the most effective ways of sparing your loved ones from probate is creating a living trust. This estate planning tool allows you to transfer ownership of your assets while you are still alive.
You may also consider other strategies, like using joint ownership or beneficiary designations for certain assets, such as bank accounts, life insurance policies and retirement accounts. Another option is to use transfer-on-death deeds for real property.
Making your assets reach your loved ones when you pass away requires strategic planning and foresight. By taking the time to understand the probate process and exploring alternatives, you can spare your loved ones from unnecessary stress and expense.