Most people have probably heard that it's best to avoid probate. However, they might not be sure what probate is and why you should avoid it. Probate is the court-supervised process of sorting and administering a person's will. If there isn't a will, the deceased person's property still goes through the probate process, and is distributed according to the laws of each state. While this process sounds harmless and easy, the probate process usually takes a lot of time and money. There are various costs and fees associated with the probate process, and can tie up property for months. FindLaw's section on Avoiding Probate offers helpful information and advice on how to avoid the probate process. In this section you can find general advice on how to avoid probate as well as some frequently asked questions regarding how to avoid probate.
A Few Ways to Avoid Probate
There are several ways to avoid, or at least minimize, what has to go through the probate process. The most common ways to avoid probate are to set up trusts, take advantage of accounts that have an option to designate a beneficiary, and owning property jointly with the person or people whom you want to inherit your property. Another easy way to avoid probate is to simply gift money and property while you're still alive. However, it's important to note that a person can only gift a person a certain amount before it's subject to taxes.
Why a Roth IRA Is a Good Idea
A Roth IRA is a type of Individual Retirement Account. IRA accounts not only have tax benefits, but also allow the account holder to designate a beneficiary, which means that money in this type of account doesn't have to go through probate. The tax benefit of a Roth IRA is very different from other retirement accounts. Traditional retirement accounts – like regular IRAs, 401(k)s, or Keogh – are tax deductible. This means that the money you contribute to the account is exempt from taxes. However, the money is taxed when it's taken out of the account. A Roth IRA, on the other hand, is taxed before it's put into the account, but not taxed when withdrawn. This can be very beneficial as generally people are in higher tax brackets when they are older.
As previously mentioned, Roth IRAs are also a good account to have if you're thinking about your heirs. While all types of retirement accounts allow the account holder to designate a beneficiary, traditional retirement accounts often have requirements that minimize their usefulness when inherited, such as withdrawal requirements. For example, a traditional IRA requires the account holder to start withdrawing from the account at the age of 70 ½. This means that less money will be in the account when the beneficiary inherits it. Roth IRAs, on the other hand, don't have withdrawal requirements, which means that the money can continue to grow regardless of your age.
Hiring an Attorney
An attorney is not always necessary in estate planning. However, it would be beneficial to consult with an estate planning attorney if your estate is large and/or complex. It's also always a good idea to contact an estate planning attorney if you questions or concerns about how to avoid probate. Finally, if you've been named the executor or personal representative in a will, a probate attorney can help you with the probate process.