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Probate - What It Is and Why You Should Avoid It When Possible

Probate is a legal process by which the court establishes the validity of a will; determines the value of the estate; resolves issues with payment of creditors, taxes, and other debts; and distributes assets to heirs. It also has some serious drawbacks.

For one thing, probate is a public process; financial privacy goes out the window. Probate can also drag out for months, sometimes over a year, due to court hearings and other court-related matters. Last but not least, probate can be expensive. Attorney and executor fees can drain up to 5 percent of an estate's value in some circumstances. Throw in appraiser's fees and court costs, among other expenses, and heirs take a significant hit in the final estate distribution.

There are a number of tools available to minimize (or eliminate) the toll probate takes on an estate. Properly designate beneficiaries or title assets so they transfer directly to beneficiaries (apart from a will) - e.g., life insurance policies, IRAs, annuities, and retirement plans. For bank or brokerage accounts, "pay on death" (POD) or "transfer on death" (TOD) designations can bypass probate, with assets going directly to beneficiaries. Be aware that not all financial institutions provide these options. A few states permit TOD deeds for real estate.

More complicated estates may benefit from a revocable trust, which after an initial setup fee allows you to manage the disposition of all your wealth in a single document, provides for a variety of tax benefits, and is able to be modified as circumstances dictate.


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