The Many Ways That An Estate Plan That Avoids Probate Can Help You

It is true that, is some situations, the probate process can be very time consuming. While your family might find this disadvantageous due to the stress of having this legal process hanging "over your head," the possible drawbacks of a time-consuming probate process go beyond that. In some circumstances, a drawn-out probate process can mean that your money might be tied up for weeks or even months without your loved ones having it available. That means that, while your bills, ranging from final expenses (if you don't have final expense insurance) to property taxes and utilities to legal fees all must be paid without access to that money. With an estate plan that successfully avoids probate, your money may be made available to pay for your final bills in a much faster manner.

Some people are also concerned about the potential loss of privacy that goes with many probate processes. In this age of identity theft and a wide array of other scams and predators, creating a public record of your wealth and the amount of wealth your loved ones will receive from you is something a lot of people might reasonably want to avoid. Creating this public record has other possible drawbacks, as well, depending on where you live. In some states -- Michigan is one such example -- the easiest way for your unsecured creditors to go after your assets is through your probate estate. If your estate avoids probate, and there is no need to open a probate case file at all, then you may be able to transfer your wealth to your loved ones without those creditors even knowing. 

Probate can be costly. Like most any legal process there may be lots of fees. A fee to open a probate estate. A fee to obtain what's called letters of authority or letters of administration. Inventory fees. And so on. What's more, the more wealth you have in your probate estate. the bigger those fees often are. Many states have considered or enacted significant increases in probate fees as a way to pay for a shortage of the funds needed to keep the state's courts running.

A few years ago, to address a budget shortfall, the state House of Representatives in Florida considered raising formal probate administration fees from a few hundred dollars to as much as $5,000. In Connecticut, the state addressed a $32 million probate court budget shortfall by increasing the price of probate fees such that those fees now pay for the probate courts' entire budgetary needs. An estate of just $600,000 (which for some people, is just the value of a home and personal property) carries a filing fee in excess of $2,000. If, for example, you are a small business owner with a $5 million probate estate, the administration fee, under the new law, is now more than $20,000. If your estate is more than $7 million, it's more than $30,000. 

However, with a carefully crafted and executed estate plan that avoids probate, you can protect yourself against the many threats, logistical hurdles and ever-increasing costs that go along with the probate process. A qualified estate planning professional can help you decide what type of plan works best for you.

Summary: If you've done much research about estate planning, you're probably familiar with probate and the notion of avoiding it. Avoiding probate may be beneficial because the probate administration process can be costly in terms of time, money and privacy. But the potential issues with the probate process, and the possible benefits of probate avoidance in terms of time, money and privacy, go beyond just want you may immediately think of. The advantages of an estate plan that is properly constructed and carried out to avoid probate, when it comes to saving you and your loved ones time, money and privacy, are actually even greater than what may appear on the surface.   

3 Dangerous Estate Planning Techniques When it Comes to Your Home @LegacyAssurancPlan

Legacy Assurance Plan: Fans of Saturday Night Live during the early 1990s will likely recall one of the show's most famous parody commercials, "Bad Idea Jeans." The crux of the joke in this sketch is that each idea the actors espoused was blatantly, obviously bad ... yet they discussed them as if they were perfectly common-sensical notions. The difference between good and bad estate planning techniques is often the exact opposite of a "Bad Idea Jeans" commercial -- things that are potentially very dangerous are often far from obviously bad; rather, they may often appear to make perfect sense. With that in mind, here is a list of 3 ill-advised yet common estate planning techniques related to your home that may seem like good ideas, but are really very bad ones.

(1) Adding your children to your home's deed. One method some people use to avoid probate is simply adding to the property's deed a child or other loved one to whom they would have left the home in their will or trust. While this can effectively avoid the need to probate that asset upon your death, this benefit will come at a steep price. First, it exposes your home to any potential liability that may cross your child's path. Whether it's a divorce, a failed business or an injury lawsuit, any court judgment that is entered against your child could place your home in jeopardy of being lost to that creditor. Even if your child is never sued, this technique carries certain tax consequences. Adding your child to the deed is actually a taxable gift in the eyes of the IRS and may require you to file a gift tax return and/or pay gift taxes. Furthermore, this technique may have very damaging capital gain tax consequences if your child later decides to sell the property.    

(2) Pocket deeds. This a technique where you, as the owner, execute a deed transferring your home to the person you want to receive it on your death. Instead of recording it, you simply store the deed someplace secure and, when you die, your loved one records the deed and takes possession of the property without the need for a probate administration. Like adding children to a deed, this can successfully avoid probate but carries numerous potential dangers. One is possible loss of control. The person to whom you deeded the property is under no legal obligation to wait under your death to record the deed. Legally, she could record the deed, take possession of the property and demand that you leave immediately... and be 100% within her rights. Also, the use of pocket deeds may increase the risks for other future problems, like a cloud on the title of the property, which may cause problems with obtaining title insurance. Furthermore, this method can cause harm in terms of capital gain taxes. For calculating this tax, the pocket deed will lead to your loved one having a smaller "basis" in the home, meaning that her capital gain tax obligation will be higher if she sells it.

(3) Transfer-on-death deeds. Transfer-on-death (TOD) deeds are not universally bad ideas. There are several situations where they can serve an essential role in an estate plan. In some other situations, though, they have the potential to be problematic. Say, for example, that you have several children and that your plan goals dictate that all of your children take an equal portion of your wealth, including your home. In this scenario, a TOD deed has the potential to generate more headaches than benefit. If you name all of your children as co-beneficiaries on your home's TOD deed then, once you die, all of them must agree in order to act. All of them must agree on a realtor who will sell the property. All of them must agree on the sale price. All of them should chip in equally to pay for the home's upkeep until it sells. Even if all of your children are agreeable when it comes to decisions about the home, securing consensus on all of these decisions can be a logistical hassle. In this case, placing the home in a trust where decisions are managed by a trustee you name might make more sense and save your children time and stress.

Legacy Assurance Plan (Summary): Estate planning, like any form of planning, has a wide array of tools and techniques that can be used. Some tools can be very helpful in some circumstances, and very harmful if used in the wrong situations. Other techniques are almost always very bad ideas that can have very dangerous consequences. For many people, the centerpiece of their estate is their home. In order to make sure that your plan accomplishes your true goals regarding your home and does so with the least amount of stress upon you and your loved ones, it is important to make sure that your plan avoids the potential pitfalls presented by using tools that are "bad ideas."