Estate Planning: Avoiding Probate
Probate can be costly
and time consuming. We’ll show you a few potential ways to save.
By Robert Valentine,
Certified Senior Advisor
August 28, 2006 - When Elvis Presley died, his
estate was worth over $10 million dollars. Then it went through probate.
After appraisal costs, legal fees, executor’s fees, and estate taxes,
“The King’s” estate was left with only $3 million. Because of improper
estate planning, a whopping 73% of Elvis’ estate was wiped out. So what
did all that money pay for? And how can you avoid some of the same
mistakes? Let’s find out.
Probate is the (usually lengthy) process of proving if a will is valid,
clearing your estate of any debt, and making sure that no one challenges
it. All of this takes place in court, which adds to the costliness. Will
or no will, an estate must go through probate.
But there are ways to reduce or eliminate costs
associated with the complicated legal process. One of the most efficient
includes establishing a trust. Assets and property within a properly
drafted trust don’t have to pass through probate. On top of that, upon
death, assets are passed on relatively quickly, especially when compared
with probate. Your assets are also more protected from creditors when
placed in a trust.
But trusts aren’t your only option. If you choose
not to establish a trust, there are several ways you can help reduce
costs. One of the best and easiest ways is to be prepared.
If you have a 401(k), an IRA, a life insurance
policy, or all three, then you have three separate beneficiaries to
name. By routinely updating your beneficiary designation, you avoid
unwanted inheritances and ensure that your wishes are carried out. Any
assets that pass through beneficiary designations aren’t subject to
probate, which makes their accuracy even more crucial.
You can also choose to own assets jointly with
someone else. From stocks to houses, if you own something jointly, that
property is passed onto the survivor automatically.
Also, many brokerage houses and banks allow you to
name a beneficiary on your personal accounts by establishing a TOD
(Transfer on Death) account. It’s one more way that your assets will
pass relatively quickly and easily to whomever you wish. Upon death,
your accounts and their contents will be passed to whomever you’ve
named.
One other option is to gift your assets to family
or friends before you pass away. By gifting the maximum tax-free amount
each year ($11,000 in 2005), you reduce the amount of your estate,
which, in turn usually reduces the amount of probate costs, which are
usually based on the total estate value.
By properly planning your estate with a financial
professional and an estate planning attorney, you can increase your
chances of decreasing probate costs and avoiding costly mistakes. While
not many people like to discuss their own mortality, the thought of
family, friends, or charity losing large percentages of their
inheritance and your estate to costs, fees, and taxes, should be enough
for anyone to start planning.
While Elvis’ estate may have been improperly
managed early-on, since being bought out by his former wife, Priscilla
and their daughter, Lisa Marie, it has become a major success story.
With the proper management it has grown from a paltry $3 million, to
over $250 million.
The lesson to be learned lies in the stark contrast
between proper and improper estate management, and shows how important
an estate plan is, whether you’re “the King,” or not.
Editor's Note: This article is number four
in a series about Estate Planning by Robert Valentine. To see links to
others in the series see sidebar at left of page.
References:
Back Room Technician, “Estates of Famous People”
chart
Stevens, Sue. June 30, 2005. Avoid the Estate
Planning Blunders of Marilyn and Elvis. Morningstar.com (Click
here)
Floyd, Elaine. March 16, 2001. Elvis Lives! Or
His Estate, at Least, Is Very Healthy. Horsesmouth.com (Click
here)
Note: This article was submitted by Robert
Valentine of Financial and Retirement Management. Robert (CA Insurance
Lic #0C23496) is a Registered Representative of and offers securities
through Securities America, Inc., a Registered Broker/Dealer, Member
NASD/SIPC. Advisory services offered through Financial and Retirement
Management, a Registered Investment Advisory firm. Robert is a Certified
Senior Advisor in Huntington Beach, CA. Several of his articles on
financial planning matters that concern investors have been published.
Robert can be reached at (877) 732-2637.
