Understanding Probate and How to Avoid It

Do you know what happens to your assets when you’re gone? How confident are you that your family will be cared for after your passing? These questions can be awkward to discuss and even uncomfortable to consider, but taking the time to put a plan in motion can help save your loved ones from a complicated and often expensive process.

But first, it’s important to understand how the process works. Many of us know just enough about probate to know we want to avoid it. But what is probate really? We’ll walk you through how it works and how you can avoid it.

The Basics of Probate
In the simplest terms, probate is the process of identifying a decedent’s assets, satisfying any debts, and distributing any remaining assets. The probate process can vary by state, size of the estate, and other factors. Probate assets are generally distributed according to the decedent’s last will and testament if they have one. Otherwise, the court follows state statutes to distribute to your family.

In the state of Florida, there are two main types of probate: formal probate and summary probate. The formal probate process can take six to nine months or longer. The probate court will appoint your executor to manage the estate throughout the process. This person will be responsible for identifying all assets (including the decedent’s bank accounts, investment accounts, physical property, passwords, credit cards, etc.) They are responsible for securing assets during the process and paying any necessary bills.

The executor is also responsible for notifying creditors of the decedent’s passing. The state of Florida allows a 90-day window for creditors to make a claim, after which the executor can proceed with the process of closing the estate. This process includes providing an accounting of the estate assets to beneficiaries/heirs, paying any remaining court or attorney fees as well as any applicable fees for the executor, and filing the proper documents with the court, which become public record, allowing anyone access to information on your estate. Summary probate, by contrast, is a streamlined version of the formal process. This process is reserved for estates valued at less than $75,000 in the state of Florida. Summary probate can take anywhere from three to six months to complete, and although it is typically faster and less costly than the formal process, it can still be cumbersome for families to navigate.

How to Avoid Probate
As you can see, probate can be an arduous process filled with expensive fees, months of waiting, and a loss of privacy. The great news is that it can be avoided with proper planning and the right documentation. It is important to remember that simply establishing a will, although important, doesn’t avoid probate itself. Life Insurance policies and retirement accounts such as 401(k), 403(b), and Individual Retirement Accounts (IRA) provide a beneficiary designation feature. This allows you to list your beneficiaries directly on the account, avoiding the court process altogether. You can even name different beneficiaries for different accounts. Some investment brokerage and bank accounts also provide this feature through a Transfer on Death (TOD) or Payable on Death (POD) designation added to the account. With this designation, the bank or custodian will directly transfer assets to your loved ones at the appropriate time, often with the guidance of your trusted financial advisor.

One of the best ways to avoid probate is through the use of a living trust, when applicable.  A living trust provides a private, comprehensive path to the transfer of your wealth, designed with you in mind. Because the trust legally owns the assets, they are no longer included in your estate, thus avoiding probate for those assets. By avoiding probate, this transfer of assets does not become a part of public records and, therefore, retains your privacy. You can determine how assets are invested and ultimately distributed to ensure your wishes are met. You, as the grantor, will also name a trustee to oversee the process.

How to Set Up a Trust
There are many different options for setting up a trust, depending on the size of your estate and the complexity of your situation. It is important to work with a trusted estate attorney and wealth advisor to ensure that all parts of your plan work together.

Estate attorneys can also assist in drafting a suite of other crucial documents, including:

• Last Will and Testament: Although we’ve established that it does not allow you to avoid probate, a will is still a vital part of an estate plan, especially if you have young children. Your will not only dictates how you would like your assets to be distributed, but you can also name guardianship for your minor children in the event of your death.
• Durable Power of Attorney (DPOA): This document allows you to name someone, referred to as your attorney-in-fact, to act on your behalf, particularly in legal and financial matters. A DPOA becomes extremely important in the event you are incapacitated for any reason.
• Health Care Surrogate: Similar to a financial DPOA, a health care surrogate allows you to name someone to make medical decisions on your behalf in the event you’re unable to do so for yourself.
• Advance Directive: This form, also known as a living will, specifies your preferences for medical care in the event you’re unable to make your own decisions, often pertaining to terminal illness or injury.

Clearly there are a lot of things to consider when estate planning, but the gift of knowing your affairs are truly in order is priceless. The process doesn’t have to be scary, and you don’t have to do it alone. A great place to start is by talking with your financial advisor. Our team at Resource Consulting Group is here to talk through options, give advice, and help you find the right attorney to develop the plan for you and your family.

Sources:

https://www.floridaprobatelawgroup.com/blog/the-complete-guide-to-florida-probate/#:~:text=Probate%2C%20also%20called%20%E2%80%9Cestate%20administration,beneficiaries%20named%20in%20that%20document.

https://www.americanbar.org/groups/real_property_trust_estate/resources/estate-planning/probate-process/#:~:text=Probate%20is%20the%20formal%20legal,living%20trust%20and%20other%20products.

Resource Consulting Group is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. All information referenced herein is from sources believed to be reliable. Resource Consulting Group and Hightower Advisors, LLC have not independently verified the accuracy or completeness of the information contained in this document. Resource Consulting Group and Hightower Advisors, LLC or any of its affiliates make no representations or warranties, express or implied, as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Resource Consulting Group and Hightower Advisors, LLC or any of its affiliates assume no liability for any action made or taken in reliance on or relating in any way to the information. This document and the materials contained herein were created for informational purposes only; the opinions expressed are solely those of the author(s), and do not represent those of Hightower Advisors, LLC or any of its affiliates. Resource Consulting Group and Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax or legal advice. Clients are urged to consult their tax and/or legal advisor for related questions.