How to Bypass Probate: Guaranteeing Your Family Has the Money They Need When They Most Need It

Probate can present a major hassle to your family — especially if they are relying on their inheritance for financial security. Even if they’re not, probate can still mean years of energy and money wasted as your Will makes its way through the court.

Luckily, there are a number of ways you can bypass probate, making things easier for your family when you’re gone.

Bypass Probate: Control Your Assets
Bypass Probate: Control Your Assets

Probate is awful. It’s slow. It’s expensive. It’s open to challenges. Let’s talk about how to get your assets to your beneficiaries quickly and correctly.

What is probate?

Let’s start off with a few definitions:

  • Probate is the legal process by which a Will is authenticated and its Executor is approved.
  • A Last Will and Testament is the document that explains what you want to happen with your property when you die, including who you want to receive your property.
  • An Executor is the person you name in your Will who will oversee and administer your wishes as outlined in your Will.

When you die, your executor will file your Will with the probate court; this will begin the probate process. The main purpose of probate is to authenticate a Will. Once this is done, the probate court will officially recognize the executor of your Will. They can then proceed with carrying out your wishes and distributing assets.

While not necessarily complicated in and of itself, probate can become so when your Will is contested or when there are conflicting directives or even Wills. When this is the case, probate can drag on for years before your property is distributed to your heirs. Other than time, the probate process can become quite costly for your family, too.

If you know your heirs will be relying on money or property left to them in your Will, you may want to avoid probate altogether. We’ve outlined just some of the ways to do so below.

Jointly Held Assets:

If you and your spouse both own your home, then this would be considered a jointly held asset. A jointly held asset is a property that is held in the names of 2 or more parties.

There are benefits to having jointly held assets — one of which is the right of survivorship; this means that upon the death of one owner, the other owner(s) automatically absorb that owner’s share of the property. Such assets bypass probate entirely.

Assets Held in Trust:

A trust is similar to a Will in that it serves as a sort of plan for your property upon death. However, there are some important distinctions — one of which is that a trust is not subject to probate.

Trusts provide more control over your assets and how they are distributed after death. For example, you can leave more specific directions for the dispensation of your property, such as providing an heir with money yearly rather than in one lump sum.

As mentioned above, trusts are also not subject to probate. This means that your wishes retain some privacy, not having to face public scrutiny through the courts. It also means that your heirs do not have to wait for probate to conclude in order to receive their inheritance.

Because trusts can be expensive and time-consuming to set up and maintain, you’ll want to make sure that it is the right thing to do for your estate. As this blog explains, there are several other ways to avoid probate if a trust is not right for you.

Listen to learn more about how to bypass probate:

IRA and Annuity Beneficiaries:

Another way to circumvent probate is to directly name your heirs as beneficiaries of your IRA or annuity.

All IRAs and 401(k)s require you to name a beneficiary. This can be a spouse, child, or anyone else you want to assume ownership of the account upon death. By default, IRAs and 401(k)s bypass probate, as the account is transferred to the beneficiary upon death.

Many people, however, name their estate as the beneficiary, which puts your account right back in the path of probate. We typically do not recommend doing this.

Similarly, you are required to name a beneficiary for your annuity. It is important to note that the deferred taxes on your annuity will transfer to your beneficiary, along with the balance.

Your beneficiary designation on your IRA or annuity trumps any directive stated in your Will; in other words, if you leave your IRA to your daughter in your Will but designate your wife as your beneficiary for your IRA, ultimately your wife will assume ownership of your IRA.

Life Insurance Beneficiaries:

An often underutilized tool for estate planning is life insurance. There are a lot of assumptions about life insurance that dissuade people from relying on it to provide for their heirs. One benefit of purchasing life insurance is that it bypasses probate, paying your beneficiaries directly upon death.

Life insurance is also usually tax-free for its beneficiaries, making it an especially attractive option to those worried about estate taxes. There are other protections life insurance provides, which we explored in a previous blog.

You do not have to be young or in perfect health to be approved for a policy. There are several different types of policies that all have different requirements and payouts. There are very few situations in which we can’t find a policy for which you will be approved.

Securities and Bank Accounts:

Finally, you can also transfer securities and bank accounts directly without having to go through probate.

The transfer on death designation allows assets to be transferred directly to your designee(s) without having to go through probate. This is different from jointly held assets as the beneficiary does not have access to the assets prior to death.

You can have multiple designees for a single account and specify specific percentages for each designee.

Probate can be a frustrating, expensive, and time-consuming hurdle to overcome in the midst of grief; that’s why it’s a worthwhile endeavor to limit your estate’s exposure to probate, providing much-needed assets to your loved ones immediately after your passing.

If your family will be relying on inherited assets for financial security, making sure they receive the money they need when they need it is a top priority. Cardinal can help you with estate planning, including strategies to avoid probate after you’re gone.

Have questions? Contact us today.