Avoid probate with estate planning
Plus, how advance funeral planning can help you and your loved ones
When it comes to having your affairs in order, some methods may make more sense for you than others. If done correctly, end-of-life planning — or estate planning — can help relieve the financial and emotional burden left behind after your death. Proper planning can also reduce and simplify the forms your loved ones need to complete after you die. Although many steps are involved with estate planning and it can be time-consuming, it can be beneficial in the long run, especially if you can avoid probate.
What is probate?
Probate is the court-supervised, public process through which a will is executed and the estate is settled. The probate process can take a long time, and beneficiaries can’t receive their inheritance, including property and funds, from the estate until probate is finished. The process can also be costly, especially if you need to hire a probate attorney, and a portion of the estate could go to the court to cover fees. After the probate process is complete, everything in the estate, including the value and the inheritor, becomes public record. These are just a few reasons why you want to avoid probate.
How to avoid probate
Michael Horn, attorney with Horn Law Offices in Des Moines, Iowa, said one of the easiest ways to avoid probate is by establishing ownership of real estate or other property with joint tenancy with rights of survivorship, so the assets can just transfer to the other owner upon your death. You can also make transfer-on-death designations for securities and property.
“Financial assets can avoid probate and be easily transferred to another person through joint ownership of accounts, Pay-on-death (POD) accounts, or by listing beneficiaries in a life insurance policy,” Horn said. Some people prefer PODs to joint ownership of an account because the POD beneficiary has no rights in the property until death occurs.
Horn said you can also avoid probate by creating a trust. A trust establishes a separate legal entity that owns your assets, so the trust still exists and can transfer your assets without going through probate when you die. Trust rules are more complex, so you will want to talk with an attorney about them.
Horn said it’s best to make arrangements to avoid probate as early as possible, and he suggested giving away some assets during your lifetime.
“But you need to be careful of IRS tax gift limits,” he added. “You also need to be aware of Medicaid look-back periods.”
Medicaid has a look-back period of five years, and if you’ve given away assets in that time, it may affect your eligibility. If you’re concerned about your Medicaid eligibility, Horn suggests talking with a probate or elder law attorney before giving away assets.
Advance funeral planning
Wills are typically read after a funeral or memorial service. This is one of many reasons why advance funeral planning makes sense. With advance funeral planning, you can arrange and pay for your own funeral. Great Western Insurance Company offers two life insurance policies that make advance funeral planning easy: Preneed Funeral insurance and Final Expense insurance.
Preneed Funeral insurance
Preneed insurance is used to fund a funeral service agreement between you and a funeral home. You decide every element you want included in your funeral service, which includes everything from the casket or urn to transportation for the family. The funeral home partner totals the costs, and that amount is the basis for your Preneed insurance plan. You can either pay the amount in one installment or through monthly premiums. Upon your death, the funds are used to pay the funeral home for your funeral.
Final Expense insurance
Final Expense insurance not only covers the costs of your funeral service, but it also covers any expenses your loved ones may face following your passing. These can include outstanding medical or credit card bills, estate taxes, legal fees, and living expenses. However, it doesn’t retain preplanned funeral costs at present-day amounts, and you’ll need to thoroughly list your wishes for how you want to be remembered.
Since the two life insurance plans vary, one option may be better for you than the other. Talking with your loved ones about estate planning and advance funeral planning could help determine which plan is the best fit for you.
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