When a person dies, their assets enter a legal process called probate. During the process, a court looks at the deceased’s wills, trusts and insurance policies to divide an estate per the deceased’s wishes.
Unfortunately, probate is not cheap. Court fees and fines stack up quickly. When combined with estate taxes and liquidating assets to pay the deceased’s debts, many beneficiaries end up feeling cheated out of their inheritance. Other parties may increase costs by contesting the probate litigation, believing they benefit instead of the party designated in the will. What can a family do to prevent these losses?
Four methods for preserving an inheritance
Individuals have several estate planning options that can help their families work around probate quickly and affordably. The following methods can help a family preserve what is theirs:
- Trusts: Setting up trusts can tuck away money or assets until after one’s death. Many different types of trusts exist to satisfy different needs. Certain trusts can make assets exempt from estate and income taxes.
- Joint property: An easy way to ensure a spouse or children receive specific property is by making them joint owners. People usually designate the family home or vehicles as joint property.
- Gifts: Savvy individuals take advantage of 2017’s annual gift exclusion tax law. Under this law, an individual may gift unlimited gifts of up to $14,000 per recipient per year, tax-free. Spouses can pool their gifts together, allowing $28,000 per recipient per year, exempt from taxes.
- Roth IRA: Unlike traditional retirement plans, a Roth IRA avoids tax deductions upon withdrawal by paying taxes on the amount beforehand. Additionally, a Roth IRA does not require the account holder to begin withdrawing money after a certain age.
Consult with legal professionals
Proper estate planning with an attorney can help avoid losses during probate. People with questions about wills, trusts or setting up an IRA can find answers with a local lawyer familiar with probate litigation.