Many people understand the importance of having a valid Will. A Will can not only ensure that their assets will be distributed according to their wishes, but it is the only document they can designate a Guardian for their minor children. A Will can also make certain that family heirlooms are securely passed from one generation to the next.
But can having a Will avoid probate? NO! This is one of the most common misconceptions. A lack of understanding along with simple planning errors may cause families thousands of dollars of court and legal fees and months, if not years of delay and frustration.
In order to understand probate and probate avoidance, it is first important to distinguish between probate assets and non-probate assets. Generally, probate assets are individually owned assets which do not have a beneficiary designation. This excludes joint accounts, joint real estate ownership and other assets with beneficiary designations, such as retirement accounts and life insurance.
Having a Will only controls the distribution of probate assets. Assets with joint owners and beneficiary designations bypass the Will and are distributed directly to the surviving joint owners or designated beneficiary. An individual may intend that all of his assets to be bequeathed to his children and may have a Will reflecting his wishes, but if his life insurance and retirement accounts still name his ex-spouse as the beneficiary, his children will only receive his probate assets and none of the retirement accounts or life insurance. This example shows how crucial it is to know how your accounts are held and who are the designated beneficiaries of your accounts.
What is probate?
Simply put, probate is the legal process by which your assets are distributed to your heirs. If you die with a Will, the Probate Court will appoint an Executor (mostly likely, the person named in your Will), who will gather your probate assets and report them to the Probate Court. These assets will be used to pay taxes, expenses and debts and creditors will be given an opportunity to make any claims against your estate. Remaining assets are then distributed according to your Will.
If you die without a Will, the Probate Court will appoint an Administrator to probate your estate. In most cases, a relative will petition the court to be the Administrator. If there is more than one party petitioning, there will be a hearing to determine the Administrator. Once probate is completed, the remaining assets are distributed according to New Hampshire statute.
In New Hampshire, probate administration creates a public record, making available your Will, assets and debts for anyone who cares to look. Probate can also be very costly: a complicated estate can have legal fees quickly adding up to be several thousand dollars, with the Executor or Administrator entitled to their own fee. In addition, probate administration may tie up assets for months, which can be extremely disabling for those who are in need to immediate funds. For these reasons, it’s no surprise that many people wish to avoid the inconvenience of probate proceedings.
How to avoid probate?
The best way to insure that your loved ones will benefit from your estate as well as ease the transition of assets by probate avoidance is the use of a Living Trust. Your Living Trust would be funded with all of your probate assets so that at the time of your death, none of your assets are individually owned: everything would either be held in trust or have a beneficiary designation. Upon your death, the Living Trust would provide a smooth transition of assets to your intended beneficiaries while avoiding the hassles of probate administration. Moreover, your Living Trust remains a private document, providing a shelter for your loved ones from prying eyes.
However your assets are held, it is important that you understand how they will be distributed upon your death and how your loved ones will be affected by your estate plan. A custom designed estate plan to fit your individual needs should allow you to avoid unnecessary hassles of probate and provide a seamless transition of assets to your intended heirs.