Many people view estate planning as an exercise in document creation, and you do have to express your wishes in writing when you devise your plan. This being stated, you should carefully consider the events that will take place after you pass away.
If you use a last will as the centerpiece of your estate plan, you would name an executor to handle the estate administration tasks after you are gone. The executor would not be able to act independently without supervision. Under the laws of the state of New York, the will would be admitted to probate, and the Surrogate’s Court would oversee the estate administration process.
Probate exists for a couple of different reasons. The creditors of the deceased individual are given some time to come forward seeking satisfaction. In New York, they have seven months to make a claim. The probate process also opens a window of opportunity for interested parties that may want to contest the validity of a last will.
These protections are fair enough, but probate presents a number of drawbacks that negatively impact the rightful inheritors. As we have stated, creditors are given seven months to seek satisfaction, so the estate will be stalled in probate for at least that long. If the process goes as smoothly as it possibly can, it will take eight or nine months to a year to run its course.
The executor cannot distribute assets to the heirs until the estate has been probated by the court. As a result, they have to play a waiting game. For many people, the time lag is a mere nuisance, but it can present a real problem for someone that may have been relying on the deceased individual for support.
Another part of the probate process that is less than ideal is the fact that it is not free by any stretch of the imagination. There is a filing fee that must be paid to the court, and the executor is entitled to generous remuneration. In many cases, the executor will call in a probate attorney, so there can be legal fees.
Final taxes and other debts must be paid during probate, so the executor may engage an accountant, and this adds to the red ink. If the estate holds property that must be appraised and liquidation, there will be charges for these services as well. All these expenses reduce the amount of the inheritances that will eventually be received by the heirs to the estate.
Most people like to keep their financial decisions confidential for many different reasons. When an estate is probated by the court, the records are available to the general public. Anyone that has an interest can access these records to find out how you distributed your resources.
There are some types of asset transfers that are not subject to the probate process. In New York, there is a simplified probate that can be used for small estates that have a gross value of less than $30,000 excluding real estate.
Life insurance policy proceeds can be transferred without the court’s involvement. The same thing is true for individual retirement accounts. If you have payable on death accounts, the beneficiaries would assume ownership of the remainder in the accounts outside of probate.
There is a condition called joint tenancy with right of survivorship. This exists when you add someone else to the title or deed of your home as a co-owner. If you do this, the surviving joint tenant would become the sole owner of the home after your passing, and the transfer would not be subject to probate.
When it comes to transfers that are subject to probate, you could proactively implement a probate avoidance strategy. This can be centered around the utilization of a revocable living trust as an asset transfer vehicle instead of a last will.
In the trust declaration, you name a trustee to handle the estate administration tasks after you are gone. The trustee would follow your instructions and distribute assets to the beneficiaries when the time comes outside of probate.
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