The Bottom Line
Inheritance planning is an unpleasant but necessary task for those of advancing age. While nobody enjoys thinking about their death, a well-structured estate plan can save your heirs and beneficiaries from a lot of legal unpleasantries. Moreover, it can also ensure that they receive as much money as possible, without losing too much value in taxes.
The Probate Process
Probate is the legal process by which a decedent's assets are divided among their heirs and beneficiaries, according to their will and state laws. If the decedent died with a will, that will is reviewed by a probate court, which appoints an executor for the decedent's estate.
Beneficiaries vs. Heirs
There is a distinction between a "beneficiary" and an "heir". Beneficiaries refer to individuals named in a will, while heirs refer to people such as a child or a surviving spouse, who are entitled to receive a decedent's property, by “intestate succession,” which is a set of rules created to sort out inheritance matters, in the absence of a will.
The Estate Planning Process
Estate planning involves determining how an individual’s assets will be preserved, managed, and distributed after death. It also takes into account the management of an individual’s properties and financial obligations in the event that they become incapacitated. Contrary to what most people believe, this isn't a tool meant just for the ultra-wealthy. In fact, anyone can and should consider estate planning.
Assets that could make up an individual’s estate include houses, cars, stocks, artwork, life insurance, pensions, and debt. Individuals have various reasons for planning an estate, such as preserving family wealth, providing for a surviving spouse and children, funding children's or grandchildren’s education, or leaving their legacy behind for a charitable cause.
Ways To Avoid Probate
There are good reasons people want their estates to avoid probate, and a lot of ways to do it.
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Probate can tie up the estate for months or longer and incur extra expenses. While some states and localities streamlined the process, at least for less valuable estates, often probate still has delays plus extra expenses and work for the estate administrator. Also, a probated estate is a public record anyone can review.
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Avoiding probate often is a major estate planning goal, and you can structure the estate so that all or most of it passes to your loved ones without probate. Generally, assets whose title passes to the next owner by a contract or operation of law are exempt from probate.