Probate can be a lengthy and costly process, which is why many people seek ways to bypass it when planning for the future. A well-structured estate plan can protect your assets, ease the burden on your loved ones, and provide peace of mind, knowing your wishes will be carried out without the court’s involvement.
At Checkett, Pauly, Bay & Morgan, LLC in Carthage, Missouri, and Nevada, Missouri, we guide our clients in drafting comprehensive estate plans that avoid probate. Below, we’ll walk you through essential steps to create an estate plan that keeps probate at bay.
Key Elements of an Estate Plan
An estate plan is more than just a will. It should include several documents and strategies to ensure that your estate avoids probate and passes to your beneficiaries seamlessly. Here are some essential components of a comprehensive estate plan.
Last Will and Testament
Although a will doesn’t avoid probate entirely, it’s still a critical document in any estate plan. The will outlines your final wishes, designates guardians for minor children, and appoints an executor to carry out your instructions. However, if you want to avoid probate, you'll need to incorporate other strategies alongside the will.
Trusts
A trust is one of the most effective ways to avoid probate. There are several types of trusts you can create, each with specific benefits for your estate plan:
Revocable living trust: You retain control over the assets while you’re alive, and upon your death, assets pass directly to your beneficiaries without going through probate.
Irrevocable trust: Once created, it can’t be altered, but assets in this trust are protected from creditors and probate.
By using a trust, you can transfer ownership of your property during your lifetime and make sure it doesn’t go through probate after your death.
Durable Power of Attorney
A durable power of attorney gives someone the authority to handle your financial matters if you become incapacitated. This avoids the need for a court-appointed guardian or conservator. This document is especially important for anyone who wants to avoid court involvement in financial decisions during their lifetime.
Health Care Directive
A health care directive, also known as a living will, outlines your wishes regarding medical treatment if you’re unable to communicate them yourself. This directive will prevent family members from having to make difficult decisions and can help you avoid guardianship proceedings, which are often needed if you’re incapacitated.
Avoiding Probate With Beneficiary Designations
A straightforward yet effective way to avoid probate is by designating beneficiaries for your financial accounts and assets. Certain assets pass outside of your estate, meaning they aren’t subject to probate. These assets include life insurance policies, retirement accounts, and bank accounts that are set up as “payable on death” or “transfer on death.”
Life Insurance Policies
If you have a life insurance policy, you’ll designate a beneficiary who’ll receive the policy's payout upon your death. As long as the beneficiary is named, the policy proceeds bypass probate and go directly to the individual or organization you chose.
Retirement Accounts
IRAs, 401(k)s, and other retirement accounts also allow you to name a beneficiary. When you pass, these funds transfer directly to your beneficiary, avoiding the probate process.
Bank Accounts
If you have bank accounts that allow a “payable on death” (POD) designation, the funds in these accounts will go directly to your named beneficiary upon your death, avoiding probate.
Transfer on Death Deeds
A transfer on death deed allows real estate property to pass directly to a beneficiary when you die, without the need for probate. This option is only available in Missouri for certain types of property and can be an excellent tool for avoiding probate.
Gifting Assets During Your Lifetime
Another way to avoid probate is by gifting assets during your lifetime. By giving away assets while you’re still alive, you can reduce the value of your estate, making it less likely that probate will be necessary. Gifting also allows your loved ones to benefit from your assets before you pass.
Here are some common gifting strategies:
Annual exclusion gifts: You can give up to $17,000 per year (as of 2023) to each person without having to file a gift tax return.
Trust-funded gifts: Transfer assets into a trust, which can be distributed according to your wishes after your death.
Gifts of real estate: Consider transferring ownership of real estate to your children or other beneficiaries, either through a trust or by deed.
Gifting assets while you’re alive can be an effective way to avoid probate, lessening the complications your loved ones can face after you’re gone.
Joint Ownership of Property
Joint ownership is another strategy to avoid probate. By holding property jointly with another person, the property automatically passes to the surviving owner when one owner dies.
There are different ways to structure joint ownership, each with distinct implications:
Joint tenancy with right of survivorship: This allows the surviving owner to automatically inherit the deceased owner’s share of the property without probate.
Tenancy by the entirety: This form of joint ownership is available only to married couples. It offers the same benefits as joint tenancy but also provides certain protections against creditors.
Be cautious with joint ownership, as it can have unintended consequences. For instance, if the joint owner has creditors, your property could be at risk.
Planning for Incapacity
While a significant part of estate planning involves distributing assets after death, it’s also important to plan for possible incapacity during your lifetime. Having a plan for who can manage your finances and make medical decisions on your behalf if you’re incapacitated can help you avoid court intervention and guardianship proceedings.
Guardianship for Minor Children
If you have minor children, it’s important to designate a guardian in your will. A guardian will care for your children in the event that you pass away while they’re still underage. By having a guardian named ahead of time, you avoid having the courts determine who’ll care for your children.
Financial Power of Attorney
This document allows you to appoint someone to manage your finances in case you become incapacitated. The agent you designate will be responsible for paying bills, managing investments, and handling other financial matters. Without this document, your family may have to go to court to gain control over your assets.
The Importance of Regularly Reviewing Your Estate Plan
An estate plan isn’t a one-time task; it requires periodic reviews to confirm it stays up-to-date with changes in your life and the law. Here are a few key times when you should review your estate plan:
After a major life event: Marriage, divorce, the birth of a child, or the death of a beneficiary should trigger a review.
When financial circumstances change: Large changes in your financial situation may require updates to your will, trust, or beneficiary designations.
When laws change: Estate planning laws are subject to change, so it’s important to work with an attorney to verify your estate plan complies with the most current regulations.
Regular reviews help keep your plan in line with your wishes, making sure your estate avoids probate as intended.
Contact Us Today
Estate planning can be a challenge, but with the right guidance, it’s possible to protect your assets and avoid probate. At Checkett, Pauly, Bay & Morgan, LLC, we have extensive experience assisting clients in Carthage, Missouri; Nevada, Missouri; and the surrounding areas, including all of Southwest Missouri.
Our attorneys are here to help you create an estate plan that works for you and your loved ones. Contact us now to schedule a consultation.
