A valid will overrides state intestacy laws. Your will also names an executor for your estate and a guardian for your minor children. Last Will and TestamentĪ last will and testament is a legal document that explains how you'd like your property distributed and to whom. A will documents how you'd like those assets distributed. It's likely you'll have some probate assets upon your death. But as with joint ownership, you can't enforce any distribution instructions once the beneficiary assumes ownership. TOD deeds partially remedy the financial risk of joint ownership with right of survivorship - your beneficiary's creditors won't have any claim to the property while you are living. Upon your death, the beneficiary becomes the legal owner. Under this structure, you retain full control over your property while you're living. Some states allow you to add a beneficiary name to real estate and other property by way of a transfer on death (TOD) deed. The gift can be in cash or property at fair market value. If you have two kids, for example, you can gift them each $16,000 during the calendar year 2022. The gift exclusion is per-person, per-year. To avoid incurring gift taxes, your property distributions must be less than the IRS annual gift tax exclusion. Gifting involves giving away your wealth while you are living. As well, creating the joint title can trigger a taxable gift. For one, you risk claims on the property by creditors of your joint owner. Joint ownership can also be problematic while you are living. If you'd like the home sold so proceeds can be shared with other family members, for example, a trust is a better strategy. Once you're gone, the surviving owner has no legal obligation to fulfill any property distribution instructions you left behind. The home would transfer to your child upon your death, outside of probate.Īs an estate planning strategy, joint ownership with right of survivorship has limitations. As an example, you might add an adult child as joint owner of your home with right of survivorship. Jointly owned property can also sidestep probate when right of survivorship is in place. Your trust attorney and your advisor can guide you on which type best suits your situation. Once the property is transferred out of the trust, the trust dissolves. On the other hand, your trust might distribute the entire estate to a few relatives all at once. The trust could provide enough income to help with living expenses, but not enough to risk a wild spending spree. If you're worried about that individual managing a lump sum inheritance, you could set up smaller, periodic payments instead. For example, say you want to bequeath property to a younger relative who's financially immature. Those rules can be complex or straightforward. Instead, it will be managed or distributed according to the rules of the trust. The property you transfer into the trust while you are living will not go through probate. Living TrustĪ trust is a legal entity that can own and manage assets, including real estate, financial accounts, cars, and business interests, among other things. Your financial advisor can help you identify which accounts on your personal balance sheet should have named beneficiaries. You can add beneficiaries to your checking and savings accounts, CDs, investment accounts, annuities, and life insurance policies. They simply transfer to your named beneficiary after you're gone. Named Beneficiariesīank and asset accounts with named beneficiaries do not go to probate. The following five strategies support that goal. You can simply minimize your assets that are subject to probate. You don't have to spend away your wealth to qualify, either. Generally, smaller estate can qualify for an expedited or informal probate. Estate Strategies to Minimize or Avoid Probate You can also distribute your assets however you'd like, even if your preferences don't align with your state's intestacy laws. This is a primary motivation for estate planning - with a structured estate plan, you can minimize assets subject to probate or avoid probate entirely. That's not ideal for your loved ones, who may not receive their inheritance for some time. Probate is the court process governing estate settlement. If you don't have a surviving spouse or children, your property may go to your parents or other relatives. Generally, your surviving spouse is at the top of that list, followed by surviving children. These laws define an order of priority for your surviving relatives to receive your property. If you die without a will or estate plan, your state government will settle your estate and divvy up remaining assets according to intestacy laws. Your estate is essentially everything you own and owe.
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