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6 Ways to Avoid Probate
As a property owner, your assets will be passed on to other people when you die. But often at times, the assets of a deceased person don't always get passed down to the right people because of the failure of the deceased to plan his estate when he was still alive. When this happens, it usually brings about many issues (some of which may take a long before they finally get resolved). For instance, if someone dies intestate, disgruntlement regarding the deceased assets may arise in the family.
When something like this happens, the court will be needed to determine who gets a share out of the asset. In legal terms, this court-supervised process is called Probate. Avoiding probate is very advantageous because it will not only ensure that your assets get passed down to your beneficiaries without any stress after you pass on but will also ensure that there is no disgruntlement or any delay in distributing the assets after you die.
There are various ways to avoid probate. Hence, this article will provide a general overview of the probate process and offer tips for avoiding or minimizing its impact.
What is Probate, and What are Probate Processes?
Probate is a court-supervised process of administering a deceased person’s estate. By administering, we mean that the court will help identify the deceased's assets, pay the debts and taxes, and distribute the remaining assets to the estate's beneficiaries when the time is right.
The probate process begins by opening a probate case in the appropriate court. The court will appoint a personal representative, an executor, to manage the estate. The executor will be in charge of the estate until it is time to distribute the remaining assets to the beneficiaries. The executor will be tasked with the following:
- Identifying the assets of the estate
- Notifying all the deceased creditors, e.g., the insurance company, bank, etc.
- Settle all the outstanding debts of the deceased.
- Pay taxes leveled on the deceased assets regularly.
- When right, distribute the remaining assets to the estate's beneficiaries.
One thing to note is that the probate process is usually very long; hence it can take a while before there’s a final resolution. In Canada, for example, the Probate process can take several months or even years before it is complete. Also, the fact that you will need to pay court fees, attorney fees, and other administrative costs, etc., means that the process is very expensive.
Now that you know how expensive and time-consuming the probate process is, the most sensible you can ever do before you pass on is to figure out ways to avoid probate. There are many methods to avoid probate; in this article, we have narrowed it down to six: Joint Tenancy, Beneficiary Designations, Living Trusts, Payable on Death (POD), Transfer on Death (TOD) Accounts, Gifting, and Small Estate Affidavit.
6 Methods to Avoid Probate
This section will briefly explain the six methods we mentioned above. But before doing that, we have to clarify a few things. These methods can be combined, and most importantly, your situation will determine the kind of method you will use.
· Joint Tenancy
If you are familiar with joint ventures and partnerships in the business world, you will know what we are about to explain here. To some extent, joint tenancy is considered the most wildly used method to avoid probate. When you hold assets in joint tenancy with another entity, when one of the joint tenants dies, the entire assets of the deceased entity will automatically go to the surviving tenant. This method is simple and yet, very effective. All you have to do is reach a mutual agreement with your co-tenant.
· Beneficiary Designations
This is yet another smart method to avoid probate when an asset owner passes away. As the name implies, a beneficiary designation typically involves two entities such that when the account owner passes away, the deceased assets will all go directly to the designated beneficiary. This method is used on assets such as insurance policies or retirement accounts to ensure that the case doesn’t go to probate when the asset owner dies.
· Living Trusts
Transferring assets into a living trust is another brilliant method to avoid probate. A living trust can be seen as a legal arrangement whereby a trustee can hold assets on behalf of one or more beneficiaries. Upon the grantor's death, the assets in the trust will then get transferred to the beneficiaries without the need for probate.
· Payable on Death (POD) and Transfer on Death (TOD) Accounts
These two are another great way to pass assets to your loved one upon death without going through probate. Not to mix them up, Payable on Death (POD) and Transfer On Death are not the same, but overall, their objectives are very similar. Some financial institutions offer special accounts that can be designated as payable on death (POD) or transfer on death (TOD) accounts. These accounts allow you to name a beneficiary, who will automatically inherit the assets in the account upon your death, without the need for probate.
Probate can also be avoided when you gift someone your assets while you’re alive. The gift we are talking about here can be to your loved ones, workers, or friends. However, it is important to note that once you gift someone these assets, you are no longer in control of them – that is, the assets will cease to be your own.
· Small Estate Affidavit
Another method to avoid or simplify the probate process is to check if the value of an estate is below the required threshold to qualify it for the probate process. Usually, a small estate only sometimes goes through probate because it wastes time and resources. An estate that is too small to go through probate will be given a small estate affidavit.
It’s important to note that the laws and specifics of probate vary in different countries, so if you are ever in Nanaimo or anywhere around British Columbia trying to avoid probate or have any questions related to probate in general, then don’t hesitate to book a session with us at Stevens and Company Law Corporation today!