April 2, 2015 in Probates/ Probate Investing
Most of the time when I write about probate investing it is to show you ways to make money working with these folks that have the responsibility of settling the estate. Probate investing is a very lucrative niche. These folks are often some of the most motivated sellers on the planet, because they have just inherited a property they don’t want. They just want the cash that’s sitting in the house. More often than not, the property needs a lot of updating. It may also need a lot of costly repairs which is something they just don’t want to spend their time or hard earned cash on.
Did you ever wonder why not everyone’s estate ends up in probate? It’s because those folks took steps to avoid the probate process.
The vast majority of folks will have their estates end up probate at the end of their life. But it doesn’t have to be that way. You just have to follow some simple and effective strategies so that all or at least some of your property and cash goes directly to your heirs.
There are a number of ways to avoid probate, but here are 5 of the most common ways.
Joint Ownership of Property
This is probably the one thing that most folks are familiar with. If your property is titled correctly when the first owner dies, you will be able to avoid probate and the property will pass directly to the surviving owner(s). In many states this will be called a “survivorship deed”. Most married couples will have this type of deed.
Giving away property and cash while you are still alive helps you avoid probate for one very simple reason; you don’t own it at the time of your death. Many people “gift” cash and property to their children in such a manner that they avoid paying taxes on them. There are strict rules about how much and how often you can do this, but it’s a very common practice especially for the more affluent population.
Revocable Living Trusts
This whole process of setting up living trusts was designed to let people avoid probate. The main advantage of holding property in a trust is that the trust is not part of the probate estate after your death, even though it is counted as part of the estate for federal tax purposes. Upon your death, the trustee (who is the owner of the property) can easily transfer the property to the heirs without going through the process of probate.
Payable-On- Death Bank Accounts
POD or Payable-On-Death Accounts are one way you can have your money pass directly to the person(s) you wish to inherit. By filling out a simple form at your bank, those people you named to inherit the money in the POD bank accounts will simply go to the bank and collect the money in the account(s) by showing proper identification and proof of death. This works even for large sums of money. And the person(s) that you designate to receive your money upon your death don’t have any rights to the money so long as you are alive.
For example, let’s say you and your spouse have a joint bank account. Jointly you name your child to be the recipient of your payable-on-death bank account. Upon your death, the account automatically passes to the surviving spouse. It is only upon that person’s death that the account passes to the child.
Retirement accounts are another example of something that is passed to the beneficiary named without going through probate.
Most every state now has some type of shortcut for the heirs of small estates to avoid the probate process. You will need to determine the rules in your state as they vary from state to state. Even if you are required to go through probate, there are often simpler and quicker versions of this process for small estates. Once again, you will need to see what the requirements are for your state.
Folks that have essentially no property, possibly few possessions and keep everything in cash will not go through probate as there are no assets. Since there is nothing to pass on and nothing to be taxed these folks will never show up in any probate process upon their death.
Should You Take Steps Now to Avoid Probate?
It is definitely worth your time to try to avoid the probate process by putting in some “up-front” work in estate planning. It will almost certainly save the survivors time and money down the road.
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