Probate is one of those estate plan terms that everyone has heard of, but no one knows exactly what it is. They know it’s bad and want to avoid it, but they’re unsure exactly why. Here’s a rundown of what it is, why it’s bad, and how you can avoid probate.
Probate is the process where the government oversees the distribution of a deceased person’s estate. The Probate Code dictates where everything goes, and the Probate Court makes sure it all gets there in an orderly fashion. It’s well-intentioned, but like many things the government does, it’s not ideal for several reasons.
First, everything takes longer when the Probate Court is involved. In my county, it can take six months just to appoint someone as executor – and that’s assuming they have named someone in a will and everyone else is on board. Second, it can get expensive – court fees add up, and the lawyer and executor rates are much higher than if the Court wasn’t involved. And third, everything that happens in Probate Court is public record. It may not all be viewable online, but anyone interested can go to the courthouse and look things up.
So, how do you avoid probate?
In California, probate is required if your estate is worth a certain amount. At this time, the threshold is about $180,000. So, the key to avoiding probate is to get your estate below that number. There are three ways this is typically done.
The first way is to die poor. No one likes this option, so I’ll focus on the other two.
The second way is to have a trust. If something is held in trust, it’s not considered part of your estate and doesn’t count towards that $180,000. So, if all your high-value assets are in a trust, then your estate will fall below the threshold, and probate can be avoided.
The third way is to put beneficiary designations on everything. If there is a designated beneficiary, then the asset goes directly to them and is not considered part of the estate for probate purposes. If all your high-value assets have beneficiary designations, then your estate is once again below the probate threshold, and you’re out of the probate danger zone.
Personally, I prefer trusts over beneficiary designations. You want to make sure there’s enough money to pay off any debts or expenses; otherwise, you might have creditors going after beneficiaries to get paid. In addition, if you ever decide to change your beneficiaries, it’s a lot easier to make a single change to the trust than to track down and change all your beneficiary designations. But, of course, I’m biased.
If you want to learn more about probate or make sure your estate is not in danger of probate, please feel free to email me at kaway@kawaylaw.com.
