Probate is the legal process of estate administration. It exists to provide a window of opportunity for creditors to seek satisfaction from a deceased individual. Another purpose of probate is to offer a forum for anyone that may want to contest a will. These protections are useful from an overview, but if you are in line for an inheritance, probate is not necessarily a positive thing.
One of the pitfalls of the probate process is the time factor. No inheritances can be distributed by the executor until the estate has been probated and closed by the court. Here in the state of New York, it will typically take around eight months to a year for probate to run its course. This a long time to wait for an inheritance, and for some people that may have been depending on the decedent financially, the time lag can create hardships.
There are also a number of expenses that accumulate during the probate process. These would include legal fees, court costs, payment to the executor, appraisal and liquidation expenses, and other incidentals. These expenditures reduce the amount of the inheritances that will eventually be received by the people that are named in the last will.
Asset Transfers Outside of Probate
There are some asset transfers that are not subject to the probate process. If you have life insurance, the proceeds would be transferred to the beneficiary or beneficiaries outside of probate. If you are married, property that is held jointly would pass to your spouse free of the probate process.
Payable on death accounts are bank or brokerage accounts that have beneficiaries attached to them. The beneficiary would assume ownership of assets that remain in the account after the death of the primary account holder, and the probate court would not be involved.
It is possible to add someone to the title or deed of your home as a co-owner. This is called “joint tenancy.” After the death of one of the joint tenants, the other one would become the sole owner of the property, and this transfer would not go through probate.
For many people, a living trust is the ideal alternative to a last will, because assets in living trust can be transferred to the beneficiaries outside of probate. The avoidance of probate is a major advantage, but there are others. First, it is important to understand that you do not lose control of assets that you convey into a revocable living trust. You can in fact revoke the trust at any time and take back direct personal possession of the property that you conveyed into it.
The right of revocation is not the only source of control. A trustee is the person that administers a living trust. While you are alive, you can act as the trustee of your living trust, so you hold the purse strings. It is also possible to change the terms or convey additional property into the trust at any time. Of course, you can take property out of the trust as well.
A significant percentage of elders become unable to handle her own affairs at some point in time. There are many different causes of incapacity, but Alzheimer’s disease is at the top of the list. It strikes around 40 percent of people that are 85 years of age and older, and the average lifespan of someone that is turning 70 today is at least 85 years. To account for this, you could empower a disability trustee to administer the trust in the event of your incapacitation.
All assets can be consolidated in one place, and this simplifies the estate administration process.
Plus, you can include spendthrift protections. To explain by way of example, let’s say that your son is very bad at managing money. You have income producing assets in your living trust. In the trust declaration, you could instruct the trustee to distribute the earnings from these assets to your son on a monthly basis. The trustee could be empowered to make discretionary distributions from the principal under certain circumstances.
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