Asset protection is essential for anyone, regardless of wealth. There are several ways to protect your assets from creditors and lawsuits. Some are simple and inexpensive, while others require more significant financial commitments. Non-probate assets include bank accounts with beneficiary designations, life insurance policies, and property held as joint tenancy or tenants by the entirety (married couples). Also, consider title options such as payable on death or transfer on death.
How to Protect Your Assets
Involves Settling Debts
A few things should be settled through probate before the estate’s beneficiaries receive their inheritance. These include determining what debts are valid and which assets should be liquidated to pay those debts. It consists of a person’s house, car, bank accounts, artwork, stamp, and coin collections. This process also ensures that any taxes owed are paid, including federal and state estate tax. Creditors should promptly be notified of the decedent’s death, or they may lose their right to file claims against the estate and Trust.
Probate law firms can help creditors properly file their claims and prosecute them if necessary. Beneficiaries should also be careful to take assets they are entitled to if they pay their bills. Setting up a system to work through that will make everyone happy is essential. For example, some people have been known to liquidate their bank accounts and gift funds to loved ones before they die, making those funds unavailable for creditor collection.
Involves Locating Heirs
A personal representative (also called an administrator or executor) must locate all legal heirs of the deceased. It may involve a great deal of work, especially if the deceased left no will or their will was challenged in court. The heirs will be given a specific time window, determined by state law, to step forward and claim their inheritance. If they do not, the assets will be transferred to the state, known as escheatment.
Companies that specialize in estate planning not only help locate heirs but also help you avoid probate by converting assets into non-probate assets. These include joint accounts, life insurance policies, and trusts. Also, if you donate assets to loved ones or charities during your lifetime, those gifts will no longer be part of your estate when you pass away.
Procedure for Legally Resolving an Estate of a Deceased Person
The first step in settling an estate is to file a petition for probate. It is a legal document that establishes the deceased person’s estate and designates someone to oversee the process. It is typically the executor named in the will, but if no will exists, the court will appoint an administrator.
After filing the petition, the executor must inventory all assets and determine their value. They must also notify creditors and give them a deadline to submit claims. Then, they must pay any taxes owed. Following that, the remaining assets must be divided among the heirs by the will’s provisions or state law in the absence of a will. It’s important to note that not all property goes through probate.
Certain investments and bank accounts can avoid probate with a payable-on-death (POD) or transfer-on-death (TOD) designation. These accounts will automatically pass to the surviving owner upon death, as well as some real estate.
Involves Distributing Assets
Probate asset distribution can be an expensive and time-consuming procedure. Several fees are associated with the process, including the Executor or Personal Representative’s compensation (depending on your state), a probate bond, and filing fees in county and state courts. It can get expensive very quickly, mainly if the estate is sizable. Then, the state and federal taxes must be paid based on the estate’s value.
Finally, there may be legal fees associated with settling a dispute over the distribution of the estate’s assets. There are a few ways to avoid the probate process altogether. One is to create a living trust and transfer all your property before you die. This way, the Trust will own your assets and distribute them according to your instructions without a court process.
Another option is to make gifts to loved ones or charitable organizations during your lifetime. These gifts do not have to go through probate, but they could be subject to gift tax, so it is essential to discuss these with your attorney or financial advisor.