Planning for the distribution of your estate is difficult and prone to procrastination. However, leaving your heirs with no plan, will, or direction can cause endless, unnecessary headaches for your loved ones. Estate planning does not need to be difficult. Wills can be drafted with an attorney over a couple of quick sessions spent discussing your goals. However, settling your probate estate is what your heirs are the most concerned about.

Probate is the process that your assets go through before being distributed to their intended beneficiaries. The probate process generally requires the executor to file a public list of all assets and liabilities of the estate with the courts. Typical probate takes between six to nine months according to the American Bar Association. However, the process can take as little as a few weeks if you can qualify for the small estate exclusion affidavit for your particular state.

The small estate affidavit

The small estate affidavit allows you to avoid lengthy proceedings and quickly settle a small estate. The affidavit form is generally a couple pages that focus on listing your assets and liabilities. Most states place a dollar limitation to use the small estate affidavit, and the typical range for exclusion is $20,000 to $100,000 (but this varies by each state).

You might think that it is impossible to get your estate so low since you own a home, cars, 401(k), and other investment assets that far exceed the small estate range. However, there are many ways to exclude assets from your probate estate. We’ll explore a few of the most common below.

Probate management

First, let’s strip out all the assets that will never be involved in the value of your estate for purposes of estate planning. All qualified retirement accounts (e.g. IRAs, 401(k), 403(b), 457, SIMPLE, SEP) are outside of the value of your estate. These accounts are distributed based on named beneficiaries and will only be included in your estate if you fail to list any beneficiaries on the accounts. Life insurance proceeds also avoid the probate process by being payable to direct beneficiaries.

The next step is to add provisions to your assets that can avoid probate but, by nature, don’t automatically avoid the probate process. For example, bank accounts can have a payable-on-death feature which exclude the value from your estate. Brokerage investment accounts can have transfer-on-death features to avoid inclusion in your probate estate. Most states even allow for real estate and cars to have transfer-on-death deeds that allow them to be excluded.

If you can exclude your investments, your bank, your real estate, your cars, and your life insurance, what is left? Personal belongings and collectibles. Generally, the value of personal property is subjective and low. You will likely qualify for the small estate affidavit if you are only left with personal belongings and the contents of your home in your estate.

Revocable trust

Many individuals get a revocable trust to put their assets into to avoid the probate process and maintain a level of privacy. However, this can mostly be achieved through other means as shown above. Revocable trusts are important for some people due to their high degree of customization and the ability to effectuate more intricate distribution plans. Certain assets like partnerships and small businesses may also be difficult to provide simple transfer-on-death provisions to. However, trusts are costly and unnecessary for the average person that can transfer ownership outside of probate through non-trust means.

Conclusion

We are not estate planning attorneys and can’t create legal documents for you. However, we can help you identify your assets and determine options for avoiding probate on those assets. Reach out to us if you want to discuss more about probate management and probate avoidance transfer techniques.

Written by Garrett Gould

Garrett Gould is a remote financial planner who specializes in long-term tax management. He is the co-owner of Halyard Financial and advises individuals, families, and small business owners throughout the nation. Garrett is an Enrolled Agent with the IRS who has passed all three of the CFA exams and has been creating financial plans for several years. Garrett is located on the Upper West Side in New York City.