While many people leave hundreds of thousands in property to their heirs, the whole process can be a headache. If the beneficiary wants to sell the probate real estate, the best way for them to get what it’s worth is to avoid probate altogether.
Rather than making them pay high fees or taking value from the property, here are ways for you to help beneficiaries to save big when selling probate real estate.
What is Probate?
During the probate process, someone from a court is named as trustee of an estate. After someone dies, that trustee is responsible for executing the estate as planned in a will or to heirs by law.
The estate trustee can be appointed regardless of whether or not there’s a will. In the absence of a will, the court will issue a certificate of estate trustee and disperses the estate by the “intestacy” laws. Intestacy is the status of anyone who dies without a will.
During this time, all property is frozen by the court. It’s illegal to transfer, disperse, or divide any of the property without the court’s approval. There is however a legal process for selling a home.
Is Probate Necessary?
The types of assets and the amount of value they hold determine whether or not probate is required. If the deceased owner had real estate property, transferring it to the beneficiary requires going through a legal process.
This legal process ensures that anyone who is owed anything by the deceased is paid before the property is disseminated. It ensures that any liens, back taxes, or loans are reconciled.
Assets are only released after financial institutions are assured that they’ll get repaid.
Probate also ensures that the property is transferred to the right person and gives anyone with objections to the beneficiary a chance to voice their concerns. Appeals are brought during this time if it’s unclear who the beneficiary should be.
Bypass it With a Living Trust
The simplest way to deal with probate is to avoid it altogether is to have a living trust. That’s the whole purpose for revocable living trust or inter-vivos trusts. Property in a trust doesn’t get probated and passes directly to inheritors.
By creating a trust document and a transfer property title, you make things easier for the people inheriting property from you. Some people keep themselves as the trustee to maintain total control but putting it into the hands of a lawyer is also a way to deal with it.
Trusts also allow for alternate beneficiaries if you need to name any. There’s no waiting period between death and dispersal either. Because a trust is settled while the deceased was still living, it’s virtually bulletproof when tested in court.
Payable-On-Death Registrations Also Work
If you want property to transfer on the event of your death, there are documents to do just that. You can name one or more beneficiaries to your account to keep your property from going through probate.
They’re fairly easy to set up and often free. They make it much easier for beneficiaries to claim money after owners die.
Naming a beneficiary is a feature that needs to be added to the account, so make sure your institution allows for it. Setting one up with a bank, credit union, or brokerage should be sufficient.
While it might take some extra paperwork, most institutions are set up to allow for this type of transfer.
Giving Tax-Free Gifts
If you write out a deed of trust, you can give the home to a loved one tax-free. However, there’s a limit of $15,000 a year as of 2019. If you have a piece of property that you want to transfer, it’s likely worth more than that.
Thankfully, there are some tricks to getting around this.
With a deed of trust, you can name owners of a property as having a certain percentage of ownership. After you name a beneficiary as the owner of a portion of the property, transfer a percentage of it to them every year. Over the course of a few years, you could give them the whole property tax-free.
To expedite the process, offer it to the beneficiary and their spouse. You can double the gift every year.
Estates that are worth less than $5 million dollars aren’t taxed by federal governments. If you’re planning on making your family or loved ones happy with a gift from your estate, why not just give it away now? You could enjoy the fact that they get to enjoy the gift today.
You also get to skip out on paying high taxes. If you want to give a portion of it away now and save a portion for later, you still lower the amount of fees that you or your beneficiaries will have to pay.
Larger gifts are still subject to taxes, as stated above, so be careful how much you designate as a gift.
Try Joint Ownership
Joint ownership is a great way to skip the process of probate. If you include a right of survivorship, you get to hand things off to the other owner in the event of death.
Tenancy by the entirety and community property with right of survivorship are two other types of joint ownership that don’t require probate.
Stocks, vehicles, homes, and bank accounts in joint ownership automatically get transferred to the survivor.
This is complicated for people who might not want to be sharing the property with their beneficiary. If relations get tense or your beneficiary decides they want to collect their half of the property now, it could throw you off. Make sure that you only do this when you know there’s nothing bad that could happen as a result.
Life Insurance
Beneficiaries on a life insurance policy can get what they’re owed without dealing with the estate. That means avoiding probate altogether. However, life insurance isn’t included in the value of the estate.
If the beneficiary dies before the person who’s named under the policy, the whole policy then ends up as part of the estate. Probate fees end up applying in these cases.
While life insurance can’t help with your property that ends up in probate, it allows beneficiaries to receive something without a long-drawn-out process getting in the way.
Use Small Estate Laws to Your Advantage
Some states have worked to make their estate planning different for each type of property. Talk to an estate lawyer or look at some of these provisions to see if they could work in your favor.
Avoiding complicated probate not only puts your mind at ease now, but it makes things less tense for beneficiaries later.
Estate laws vary from state to state and federal laws rule over everything else. Since it’s such a complicated process, you should get an experienced attorney in your corner to help.
A Survivorship Clause
Having a beneficiary die before or at nearly the same time as you makes the process complicated.
Survivorship is a pretty standard feature and it means that only beneficiaries who survive for a certain period of time after the trust is enacted can be validated. This period can range from just a few days to 60 days.
This allows for wills to account for accidents which are rare but can and do happen. Sometimes both spouses die in a crash. When one names the other the beneficiary, the plan the first has for their estate is subject to the other’s will.
The issues would otherwise have to be settled in probate court.
If you’d rather give your estate to a best friend than next-of-kin in the event your spouse isn’t available, it needs to be made clear. This avoids probate and keeps your potential beneficiary from needing to go to court.
Trust Clauses Help
Sometimes an estate could go through probate twice. If the deceased offers property to an aging family member who dies a year after they get the property, that property could go through probate a second time.
Trust clauses let your trustee or someone else to hold a portion of the asset in trust for the lifespan of the beneficiary. When they’re deceased, it then passes on to the second beneficiary, only paying probate fees the one time.
Probate Real Estate Could Be Sold For Cash
If none of these efforts were put into place in advance, it leaves beneficiaries in a tough bind. One of the best ways to ensure that you can save big is to avoid dealing with realtors and selling the home for cash. Cash buyers guarantee money in your pocket without any of the legwork of selling.
Follow these money-saving tips for selling an investment property that you’ve inherited.