Property and assets inherited after your death goes through the probate court if they are included in your will or if you die without one. Avoiding the probate process will save time and money on legal and court fees. There are many ways to do this.
Trusts are one of them, but they can be complicated and expensive to create and manage. In practical terms, using a trust to transfer assets only makes sense for the very rich. Although a trust avoids the probate process, it is usually not reason enough for most people to justify the cost of creating a formal trust. These methods are much easier and less expensive, some being free to do. Like a trust, these other methods avoid the probate process and protect your assets.
Although it involves the probate process, a will is still the better choice for the majority of people. It is less complicated, better recognized, and costs less than creating a formal trust for your assets. When you use a will, you can also use the methods in this section to avoid probate when you pass on many of your financial assets without the cost and complexity of a trust. They are usually not necessary for assets that are jointly owned, especially since the joint ownership agreements supersede transfer on death agreements. Although they could be a safeguard if all of the owners die at the same time.
These documents must have specific legal language and comply with your state’s estate and homestead laws. When naming beneficiaries be sure to identify them by name, not their relationship to you.
One way is to use a beneficiary designation form to transfer individual assets to someone after your death, making the asset payable on death.
Common assets that allow a beneficiary to be named include:
Other Considerations When Creating a Payable On Death Account.
Transfer on death registrations are recognized in most states. The beneficiaries must contact the transferring agent and re-register the investment in their name by sending a copy of the death certificate and an application for re-registration with the account number.
A Totten Trust is an informal revocable living trust that is actually a type of payable-on-death account created at your bank for your accounts there. They may be called tentative trusts, informal trusts, or revocable bank account trusts and are recognized in most states. The major goal of the trust is to ensure that your financial assets avoid the probate process.
The transfer on death or beneficiary deed is another way to transfer real estate, possessions, and other property you own without the probate court being involved, unless your beneficiary dies before you and there is no contingent/backup beneficiary. Jointly owned with the right of survivorship is handled differently.
Florida, Michigan, Texas, Vermont, and West Virginia recognize an Enhanced Life Estate Deed, sometimes referred to as a “Lady Bird Deed,” that performs a similar function.
These methods avoid the probate process by transferring your property directly to a beneficiary after your death. This involves naming beneficiaries on the deed/title. Filling out a transfer on death deed is easy, but certain items and language must be included. Forms are available online.
The transfer on death deed is valid once it is signed and recorded in the public land records office in the county where the property is located. It is not valid if filed after your death.
You can change beneficiaries for the transfer on death deed, modify, revoke, and/or replace it at any time during your lifetime.
After your death, the beneficiary will become the new owner by filing your death certificate with the county where the property is located.
The homestead protection law is designed to protect individual property owners or their families from losing their homestead property to creditors during hard times, such as your death. This law protects your surviving spouse and family from some of the financial consequences of your death. Your beneficiaries may qualify for a homestead exemption if they now have a low income, are a senior, have a disability, are a veteran.
The federal government and every state (except New Jersey and Pennsylvania) have their own homestead laws and exemptions. Some states have differences between counties, like Florida, while others can vary by territory. There is significant variation among states in how the exemption is applied and how much is protected from creditors.
The primary purpose of equity protection is to assure that your surviving family has both physical shelter and financial protection. These laws can prevent them from needing to sell the residence by allowing a portion of it to be claimed, making that portion of estate off-limits to unsecured creditors. Protected properties include farms, houses, condos, co-ops, mobile homes, and burial plots. Any unused portion of the homestead exemption can be used for other property.
The equity protection includes the only primary residence, the land it sits on, and any out-buildings or annexes. This does not apply to other property you own even if they are residences, since the law only entitles the owners to one primary residence. For example:
If your surviving spouse moves their primary residence, they must remove the homestead exemption from their former primary residence and refile for the exemption in their new area of residence.
The exemption does not prevent:
Protection limits for your primary residence only apply to the equity you have in your home at the time of your death, not its assessed value. Equity is the assessed value of the home minus the balance of the mortgage and other financial claims on it.
Homestead exemption amounts.
The homestead property tax exemption allows your surviving spouse to exempt a part of the property’s assessed value, essentially reducing the value of the property used to calculate property/homestead tax. These exemptions can help your surviving spouse and family to stay in the home after their income has been reduced by your death.
The homestead property tax exemption is based on the value of the home. It is available in some states and may provide ongoing reductions in property taxes. In some states every homeowner gets the tax exemption while eligibility in other states depends on income level, property value, age, or if you’re disabled or a veteran.
A homestead tax or property tax exemption is usually based on the local government tax assessor’s office determined value of the home.
The exemption can be a percentage of the property’s value, but is usually a fixed tax deferment.
A fixed exemption makes the reduction in property tax progressive, being more significant to those with less expensive homes.
The calculation of the exemption involves subtracting your state’s exemption from the value of the home before calculating the estate. For example, if the home is assessed at $250,000 and your property tax rate is 1%, the property tax bill would be $2,500. But if you were eligible for a homestead tax exemption of $50,000, the taxable value of your home would drop to $200,000, meaning your tax bill would drop by 20% to $2,000.
If we compare houses using the above calculation where the first $50,000 of the assessed value is exempt from property taxes, when the value of the house increases:
Items of personal property, benefits, and wages can be protected from creditors.
Personal property eligible to be exempt include (check your state law for specifics): household furniture and appliances, tools of the trade (such as a building contractor’s pickup truck and power tools), family photos, clothing, musical instruments, burial plots, and/or water rights.
Many states allow you to choose between the state or federal exemptions, but you must choose one or the other.
The current federal personal property exemption amounts are:
Other exemptions they may be entitled to include:
Other non-bankruptcy exemptions mostly apply to government and military personnel benefits, with others for workers in regulated labor markets such as railroad workers, merchant sailors, and longshoremen.