When a person dies, their estate is typically administered through the probate process. The decedent’s estate executor works with the local probate court to ensure all assets are distributed to their designated beneficiaries and debts are properly handled.
However, probate can be an expensive, time-consuming procedure that can delay the transfer of assets to beneficiaries and shine an inadvertent spotlight on a grieving family. Fortunately, with the right estate planning strategies, you can help your loved ones avoid probate court, or at least significantly reduce the amount of time and money they spend there.
What is probate?
Probate is the legal process through which a deceased person’s estate is divided and distributed among their beneficiaries. If a person dies intestate (without a valid Will), a decedent’s assets will be distributed to what are called their heirs-at-law which is controlled entirely by Virginia’s intestacy statute. If the decedent does have a Will, the court will supervise the Executor’s actions to ensure that he or she pays all required debts and then transfers all remaining assets hat the appointed executor transfers all property to the proper beneficiaries, any after debts are settled.
It’s in an individual’s (and family’s) best interest, especially those with minor children, to avoid probate due to the court expenses as well as the extended timeline (typically between six months and two years). However, the ability to avoid probate court depends on how the decedent prepared their estate plans during their lifetime.
Ways to avoid probate court
Here are some ways to help your loved ones avoid probate court after you pass away:
1. Make a Will
While assets passed down using a Will must still go through the probate process, documenting your final wishes can significantly reduce the time and cost of probate for your family, since a court will not have to make inheritance decisions on your behalf. More importantly, your assets will go to the people, whether friends or family, that you select to inherit from you, not persons set forth in a Virginia statute based solely on the marital or blood relationship to you.
2. Create a living trust
If you feel strongly about avoiding the burdens of the probate process, regardless of whether you have a large or small estate, or several beneficiaries to provide for, or perhaps even the goal of providing for a beloved pet, the best option may be to create revocable living trust. As part of creating a trust, you will need to arrange to re-title assets into your Trust or you’re your Trust as the payable on death (POD) beneficiary for them, and, while you’re alive, you will serve as the trustee and appoint a trusted person, bank or trust management company to serve as your successor(s) in the event you cease to serve as trustee (i.e., incapacity or death).
3. Give away property as gifts
Another way to successfully avoid probate court is to give away some of your property during your lifetime as a gift to your loved ones or friends. Lifetime gifting can be considered part of an overall estate plan, but note that gifts are subject to certain federal “gift tax rules” which limit how much can gift in one calendar year and require the filing of a “gift tax return” with the I.R.S. if you exceed those annual limits. This “gift tax return” is merely a reporting event while you are still living, and, at your death, the I.R.S. will determine if, in fact, your estate owes any gift taxes for exceeding what’s called the “lifetime gifting limit” set by federal law. The current lifetime gifting amount is unified to the estate tax limitations, which is $11.58M for individuals and $23.16M for couples, through 2025.
4. Choose the best approach to deal with real estate in Virginia.
In Virginia, real estate does not pass through probate. However, if you have minor children inheriting from you, this fact becomes rather complicated and costly to the surviving guardians for your children, who will have to file to become a named conservator of the net proceeds from the sale of the real estate and subject to annual, burdensome reporting requirements and distributions limitations that are surprisingly low for what a child might need to support them on a yearly basis.
Trust planning can become a critical part of estate planning to avoid this burden altogether and facilitate ongoing use of a child’s inheritance by a named trustee, without statutory limits, over the child’s lifetime until they reach an age (or set of ages) you believe are best for the child to receive outright what you leave to them.
Of course, for any real estate that is jointly owned with a survivorship right, the surviving owner on the deed to that property will immediately inherit the property and avoids probate entirely. However, if you want to both avoid probate and dealing with the “federal gifting limits” or the “gift tax” reporting requirements, so long as you have a beneficiary(ies) in mind who is age eighteen (18) or older, you can also have an attorney prepare and record something called a “Revocable Transfer on Death Deed” to direct that the property transfer immediately upon your death to that beneficiary(ies).
5. Appoint a pay-on-death beneficiary for financial accounts.
Payable-on-death (POD) is the process of appointing a beneficiary for all of your financial accounts, which can include naming your Trust for all of your non-retirement accounts. You can do so by filling out the necessary forms, and upon your death, the funds will be paid to your named beneficiary or the successor Trustee of your Trust, and your account closed thereafter.
6. Use transfer-on-death for other assets.
Transfer on Death (TOD) is the process of naming a beneficiary for your other assets, including securities, real estate, and motor vehicles. Under the Uniform Transfer-on-Death Securities Registration Act, TOD ensures that all applicable asset titles are transferred to your designated beneficiaries.
The difference between POD and TOD is that the former is a liquid cash transfer, while the latter is the actual transfer of the asset itself, so the TOD beneficiary receives your shares of stock, for instance, that you owned and named them as TOD, and s/he does not have to liquidate them to cash if s/he does not want to.
7. Contact an experienced estate planning lawyer for help.
If you need help navigating the best approach to an estate plan in order to avoid probate or to understand how Virginia’s probate laws will impact your particular estate under your current estate plan, it is extremely worthwhile to spend time (and a little money) now on a consultation with an experienced estate planning and probate attorney.
The Law Office of Patricia E. Tichenor has assisted Northern Virginia families with their estate planning, probate avoidance planning, and probate needs for more than 15 years. Contact us today to learn how we can help you create the best plan for your family’s future, and potentially reduce or avoid the burdens of probate, or even conservatorship for inheritance by a minor child, in the future.