Probate: what is it, why is it costly and how to avoid it?
When a person dies, her estate must go through a court process called probate. The process entails a special court called a “probate court” which will decide how the estate of the person who died (the decedent) is distributed. This process entails the distribution of property according to the decedents will, and the paying of debts and taxes in accordance with the law.
Probate sounds like a good thing, what is wrong with it?
The problem with probate is that the process can take months, even years and it ends up costing the decedent’s estate needless amounts of money. Many states require an attorney be hired for the process and the court itself charges probate fees. Attorney’s fees and court costs alone can reach thousands of dollars, even millions for very wealthy estates. Because of it’s great cost and the length of time involved it is often wise for a person to try to distribute as much of their property as they can outside of the probate process.
How to avoid probate
There are many different legal and financial devices available that you can use to avoid probate. Below is a list of some of the more popular probate avoidance strategies:
For many people a living trust is the most effective probate-avoiding device. It allows you to place your property in the care of a legal entity called a trust. You name yourself as the trustee and then designate a successor trustee. While you are alive you can manage the trust property, but upon your death the property passes to the care of the successor trustee who then must distribute the property according to the wishes you previously laid out. It operates similar to a will in that it controls how your property is distributed after death, but the process is done entirely outside of the probate court, thus allowing you to save on unnecessary costs.
Tenancy by the entirety or joint tenancy
These two forms of property ownership allow property to pass to a survivor upon the death of the former property owner with no probate involved.
Tenancy by the entirety
A tenancy by the entireties exists only for married couples and in some cases the law will assume one exists even where the couple did not intentionally create one. In this form of shared ownership both members of the marriage share equally in the property they own. Upon the death of one spouse his or her share passes automatically to the spouse who survives. This passage is simple and avoids probate completely.
A joint tenancy is shared ownership of property but it is not between married couples. This must be created intentionally and it also allows full ownership to pass to the survivor upon death.
Gifts that you make while still alive
If you give your property away as a gift while you are still alive, you will be removing that property from probate. This can lead to cost savings and is often a part of a responsible estate planning scheme. Keep in mind however, that the federal government taxes certain gifts and that states have their own individual rules regarding gift taxes, but usually, a gift while you are still living can lead to savings in the disposition of the property.
If you die without a will, or with just a will, the majority of your property will pass through probate. Probate is a costly and timely process that often does not produce great value for the person who died. A responsible estate plan should include probate avoidance devices such as a living trust, joint ownership or the making of gifts while still alive. In addition there are many other probate avoidance devices. In order to ensure your estate plan has the right mix of devices and that you follow all of your state’s rules, contact a local estate-planning attorney.
 Denis Clifford, Plan Your Estate: Protect Your Loved Ones, Property and Finances 133-146 (Betsy Simmons ed., Nolo 9th ed. 2008).