Hello everyone and welcome to this month’s Ask the CFP segment. This month’s question is, “how do I avoid probate with real estate?” If you’re familiar with probate court, you may know it can take months if not a year or more for assets, such as real estate, to come out of probate and make it into the hands of beneficiaries after someone passes away. In addition to months and months of time, probate court can also be expensive. Between legal fees, appraisal fees and court costs, probate may cost beneficiaries 2% to 5% of their inheritance. In addition to fees, probate court can also be public. Because it’s a public court system, some information about the estate can become part of public record. If you would like to avoid the time, cost and privacy issues associated with probate court, especially with real estate, here are a few options.
First, real estate can be own by a trust, such as a revocable living trust. If done properly, real estate can avoid probate court because trusts are generally handled privately among the parties of the trust. The trustee of the trust could sell real estate, for example, and give the proceeds of the sale to the beneficiaries of the trust. It’s quite common for real estate to be owned by a trust for the purpose of probate avoidance, especially for real estate located in various states. When someone passes away with a home in one state and vacation property in another, each state’s probate court may be involved if proper planning isn’t done in advance.
Second, when real estate is titled in the name of more than one person with rights of survivorship, such as a spouse or an adult child, the property will generally avoid probate court if one party passes away. Title passes to the remaining survivors on the property. Keep in mind, if you have an aging parent and add your name on the title to avoid probate, this could cause unintentional issues. For example, you could be subjecting your parent’s real estate to your personal creditors. Adding yourself as an owner could also be seen as a taxable gift by the IRS. Also, if you have siblings that were supposed to receive a portion of the property after your parents pass, this property may go to you and you alone at their death. Rights of survivorship may avoid probate but isn’t always the right answer.
Lastly, many states allow for the use of a special deed called a beneficiary deed or transfer on death deed. Some states call this deed by a different name and some states don’t allow it at all. When allowed, the beneficiary deed acts as a beneficiary designation tied to the deed of the property. After the owners pass away, the property can avoid probate and transfer to the beneficiaries, which could be heirs or even a trust.
Overall, if you want to avoid probate court with your assets, you’ll want to pay special attention to your real estate. It’s much more complicated to deal with in probate court than a bank account or life insurance. If you have a question about this topic or have a question for next month’s video, please send it to Mpeek@MonetaGroup.com. Thanks for watching and we’ll see you next month.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please speak with a qualified tax or legal professional before making any changes to your personal situation.
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