When an individual dies, the property they own becomes the property of their estate. Those resources are subject to probate statutes and any estate planning instructions. The assets that are part of an individual’s estate contribute to its value.
In some cases, highly-valuable assets can lead to estate taxes. Other times, the assets in an estate could be vulnerable to creditor claims or Medicaid estate recovery efforts. Family members might also fight over certain property, possibly by going so far as to contest a will.
People who want to limit the risk of estate taxes, protect their families from probate conflicts and preserve resources often specifically plan to keep certain resources out of their estates and, therefore, out of probate court. The following are some of the tactics that can prevent assets from becoming part of an estate.
Funding a trust
The resources used to fund a trust typically do not become part of an estate. The assets belong to the trust and are under the control of the trustee. Trusts can be useful in situations where people worry about creditor actions or the possibility of requiring Medicaid benefits later in life. Trusts can also help those concerned about the possibility of estate taxes or family conflict after they die.
Taking on co-owners
One of the simplest ways to transfer assets directly to an individual is to grant them an ownership interest while the testator is still alive. For example, executing a deed to add a romantic partner or caregiver adult child to the title for a primary residence can help keep that property out of probate court later. Testators can also add loved ones to title documents for vehicles or to financial accounts. However, it is important to remember that co-owners have control over assets and could abuse that power in some cases.
Arranging for direct posthumous transfers
People may have assets that they hope to transfer to a loved one but do not want to share with them while they are still alive. It may be possible to make arrangements ahead of time for those assets to transfer directly to a specific beneficiary after the death of the testator. Transfer-on-death designations filed with financial institutions can allow specific individuals to assume ownership of financial accounts after the current owner passes. If the asset in question is real property, it may also be possible to execute a transfer-on-death deed that allows a beneficiary to assume control of the property when the current owner dies.
There may be other strategies that people can use to keep valuable assets out of probate court depending on their circumstances. Reviewing estate planning goals at length with a skilled legal team can help testators preserve their resources and leave a meaningful financial legacy.