You have been probably warned before that you should plan your estate in such a way that it will allow your family to avoid probate proceedings. In fact, planning your estate early on offers benefits other than avoiding probate. However, in the attempt to follow this advice, many people make mistakes that can lead to even worse problems after death.
Common Probate Mistakes
One common mistake people make when trying to avoid probate occurs when after the death of one spouse, the surviving spouse adds a child’s name (or another relative’s) to their bank accounts, brokerage accounts, real property, and other assets, with the mindset that they are giving control over such assets to another person in order to avoid probate when they die. Although this action could avoid probate, it could lead to many other complications. Naming a child or another relative for the property is essentially the same as gifting the child, which leads to taxes and a risk of losing your Medicaid qualification. Also, upon death, your assets may be distributed unequally, against your preferences.
Another common mistake is joint ownership, which seems like a solution, but which has several hidden traps that people may not see right away. When adding another person to your property, said person immediately becomes the co-owner of the property (personal or real), so in the case of a bank account, for example, the co-owner can withdraw money without your consent. You also lose the right to sell your property without the consent of all owners. Furthermore, if your co-owner is ever involved in a lawsuit, bankruptcy, or a divorce proceeding, you will be in great risk of losing your property for good.
Avoiding Probate Without Making Mistakes
A simple way to deal with this is to designate people (i.e. beneficiaries) who will automatically inherit your bank accounts, real estate, and other assets once you pass. You can also set up payable-on-death bank accounts so that during your lifetime, that person has no rights to the money and you retain all the rights to use the money, and so you alter the name of the person appointed if you ever change your mind.
Still, one of the most effective ways to avoid probate is to create a trust where you can transfer almost all of your assets. Trusts do not go through probate, and every asset that you keep in the trust will be automatically transferred into the name of the designated person after death. Once the trust has been established and signed, the titles of all properties must be transferred into the trust. This last step is crucial and a lot of people fail to do it. If you do not transfer all your property into the trust – it simply will not work.
Ensure That You Don’t Make Mistakes
Creating an estate plan can make your life much less stressful and your matters more organized. However, attempting to do so on your own can increase the chance of making the wrong move, which may cause many legal and financial issues for you and your heirs. Speak to an experienced estate planning attorney to work out a unique plan for your estate, depending on your state rules and your situation, which will allow you to preserve your property and distribute it in accordance with your wishes.