It is a general legal requirement that your last will and testament at the time of your death is approved by laws of your state or province. Also known as probate, the process also confirms your executor’s appointments, and each state specifies the types of documentations needed as part of the process.
Although not all wills are required to go through a probate process, most estates or assets end up going through the process. And where probate is required, it may not be possible for the executor to distribute or manage the assets until the process is completed.
Most states charge fees for probating a will. Accordingly, it is important to understand how you can minimize these fees. One of the easiest ways of bypassing probate requirements and reducing the associated fees is to invest your assets with an insurance company.
Generally, most financial institutions require that a will for non-registered investments are probated when the value of the asset or the accounts associated with assets reach a certain amount. However, this is not the case with non-registered (and registered) savings or income polices that are issued by insurance companies, especially where the owner of the property has named a beneficiary to receive the policy proceeds.
Most insurance companies’ savings and income policies are governed by state insurance legislations that allow the owner of a property to name a beneficiary. It is this legislation that protects the insurer against recourse when paying a death benefit according to the last beneficiary on the contract file. Accordingly, insurance firms can pay a policy’s proceeds to the beneficiary immediately they receive appropriate documentations without the need of a probated copy of the will. Additionally, such assets do not form part of the estate when it comes to determining probate fees.
Nonetheless, placing your assets with insurance company is not the only way of reducing the cost of probate fees. Other methods do exits, although some do not have the same convenience, and may come with some negative consequences, such as immediate taxation or loss of control on deemed disposition of a section of the assets. Options also vary from state to state, and should only be considered after meticulous consultation with the right legal representatives and accountants. Some of the common options include:
– Joint ownership of assets with the right of survivorship, such as jointly held property or a joint bank account.
– Owning a property outside your state
– Keeping other assets outside your state (for instance, a boat)
– Donatio mortis causa (or giving gifts in contemplation or dependent on death )
By and large, it is important to clarify that it may not always make a lot of business sense to make significant efforts to avoid probate fees because it is always a cost-benefit question. Therefore, the best thing to do is to understand what your probates’ status would look like if you were to die tomorrow, and then establish whether some of the ideas or methods discussed above might make sense to you.