You’ve worked your whole life to build your legacy. You established and grew a career, and perhaps even built your own business. You raised a family. You may have made your mark in your community. And you likely accumulated significant assets along the way.
Now it’s time to determine what will happen to those assets, and your legacy, after you pass away. It’s no small decision. Far too many retirees fail to make plans for their estate. The result is that their family and the courts have little guidance on how to distribute assets.
Without proper direction, family members may find themselves in conflict on how to split assets. Some charities and loved ones could be left out altogether. And, perhaps most concerning, your estate value could be significantly reduced by things like taxes and probate costs.
What is probate? It’s the process by which the court settles your estate. During probate, the court and your executor inventory your assets, pay all debts, liquidate any assets that need to be sold, file tax returns and locate all heirs. It’s a process that can be time-consuming and costly.
If you want to get your assets into the hands of your heirs as quickly as possible, and if you want to maximize the value of their inheritance, one strategy is to minimize the impact of probate. Fortunately, there are steps you can take to do just that. Below are three popular asset transfer methods that can help you manage your probate exposure:
Items that are transferred via a will are usually included in the probate process. However, assets transferred via beneficiary designation are not. That includes things like life insurance, annuities, IRAs, other qualified retirement plans and more.
If you have assets that don’t have a beneficiary option, you can put them into a trust to bypass probate. Trusts do have beneficiary designations. If you retitle those assets with trust ownership, the assets are then distributed via the terms of the trust, not by the will or the direction of the court.
There’s a wide range of different types of trusts. A financial professional or an estate planning attorney can help you choose the best type for your needs.
Another way to minimize the impact of probate is to use a joint ownership title on assets. This can be especially useful if you know that you want a specific asset to go to a certain individual.
For instance, you may have a lake house that you want to go to a certain child. You could add them as joint owner. Then, when you pass away, your joint owner child simply takes over as full owner, bypassing the probate process.
Be careful, though. As soon as you add an individual as joint owner, they assume all the same rights of ownership that you have. Make sure you can trust them with that responsibility before you choose this route.
Finally, you could also minimize the impact of probate by giving assets away while you’re still alive. Clearly, if the assets aren’t in your estate at the time of your death, they won’t be included in the probate process.
The other benefit of giving during your lifetime is that you get to see how your heirs use the gifts. You may help a grandchild fund their education, a child start a business or maybe even a favored charity serve more people.
Lifetime giving can be complicated, though. You’ll likely want to maintain a level of fairness among heirs, so you may need a written gifting strategy setting firm limits and guidelines. You’ll also want to be sure to maintain enough assets to fund the remainder of your retirement, especially in case you need long-term care in the final years of your life.
Interested in reducing the impact of probate on your estate? Contact us at Bridgeriver Advisors in Bloomfield Hills, Michigan. We’re happy to consult with you and your family and help you develop an estate strategy that meets your objectives. Let’s connect today and start the conversation.
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