If you use a will to record your final wishes, you would name an executor to act as the estate administrator. Under the laws of the state of New York, the executor would not be able to complete the tasks independently without supervision.
The will would be admitted to probate, and the Surrogate’s Court would preside over the administration process. In New York, there is a simplified probate procedure for estates that are valued at $30,000 or less, but larger estates would be subject to the full probate process.
However, there are some types of asset transfers that are not subject to probate, and we will look at them in this post.
Payable on Death Accounts
When you open up a bank or brokerage account, you can make it a payable on death or transfer on death account by adding a beneficiary. You do not have to worry about sharing access to the resources, because the beneficiary would have no access while you are living.
After your death, the beneficiary would obtain a death certificate and present it to the institution. As long as everything is in order, the bank or brokerage would release the assets to the beneficiary. Probate would not be a factor.
Inherited Individual Retirement Accounts
If you have an individual retirement account, the beneficiary will assume ownership of the account after your passing. The Surrogate’s Court would not be involved in the transfer, and the distributions would not be taxable if it is a Roth account.
Distributions from a traditional individual retirement account would be subject to regular income taxes.
Property Held in Joint Tenancy
You can change the ownership documents to add a joint tenant to your property, and they would become a co-owner. After your passing, the surviving joint tenant would become the sole owner of the property, and this would be a probate-free transfer.
This may sound good solution on the surface, but it is very risky, because the joint tenant would own half the property immediately. If they are sued, their portion of the property would be within reach of the litigant seeking redress.
As you can see, you can coincidentally facilitate probate avoidance even if you are not intentionally trying to do so. This being stated, some people proactively implement probate avoidance strategies.
Why would they want to avoid this legal process?
Probate will typically take nine months at minimum, and no inheritances are distributed while the estate is being probated by the court. It is a public proceeding, so the records are available to anyone that has an interest.
Another negative is the cost factor. There is a filing fee, and the executor is entitled to remuneration. In many cases, the executor will engage a probate lawyer and an accountant, and there will be appraisal and liquidation expenses.
If you use a living trust instead of a will as the centerpiece of your estate plan, you would act as the trustee while you are living, so there would be no loss of control.
When you are gone, the successor trustee that you name in the document would distribute the assets to the beneficiaries outside of probate. You can also include spendthrift protections when you have a living trust, and the asset consolidation streamlines the administration process.
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