5 Things You Can Do to Avoid Probate: Part 1
After hearing the 3 reasons to avoid probate, you may have decided that you do want to avoid probate with your estate plan. Let’s talk about some ways to avoid probate altogether: (1) gifts, (2) use beneficiaries on retirement accounts, certificates of deposit and other investments, (3) work with your bank to find ways to add beneficiaries to your bank accounts or create joint accounts, (4) joint tenancy with right of survivorship, and (5) a living trust. Today we will discuss the first three and tomorrow, we will cap it off with the final two.
First, you can use gifts. This sounds easy, but during your lifetime you can begin to give away your estate to your loved ones. It doesn’t have to be solely cash gifts, but can be gifts of property as well. Keep in mind; however, that gifts may subject you to federal and state gift taxes. In 2013, the annual gift tax exclusion is $14,000 and annual gifts above that reduce the estate tax exemption that is currently $5,250,000. Also note that some states, such as Connecticut and Minnesota, also have state gift taxes.
The next method of avoiding probate is to use beneficiaries with your retirement accounts. No matter what type of retirement account you have: 401(k), 403(b), IRA, etc. you will be able to set the beneficiary of your account. This beneficiary will likely only need to provide the plan administrator with a certified death certificate and the funds can be disbursed immediately and directly to the beneficiary without having to go through probate and without being subject to creditors’ claims.
You should also inquire with your bank about having a beneficiary on your regular banking accounts such as your checking and savings accounts. Each bank or credit union has different rules for these. If your bank does not allow a beneficiary for your account you can also look into having someone else a joint owner on the account.