Biggest Lessons I’ve Learned About Probate

Which of These Items is Not Generally Included in Probate?

( – There are two certainties in life: death and taxes; and in most cases, one leads to another by way of probate and estate taxes. One method for ensuring your loved ones are taken care of financially, regardless of probate, is purchasing a life insurance policy.

Planning for Probate

Doing what you can to avoid probate, or the validation of a will or estate to the court system, should be part of an estate planning process. Almost all assets will be subject to probate and taxation. A few exceptions include property owned in a joint survivorship arrangement, retirement accounts and life insurance policies.

While your beneficiaries will have access to the money from these exceptions right after your death, whether the value of the policy gets added to your estate for tax purposes depends on a few conditions.

Estate Taxes

Whether or not the value of your life insurance policy is considered when calculating the total value of your estate, and subsequent estate taxes, depends on who owns the policy when you pass away. If you own the policy, the value will be added to your estate which will most likely cause the estate taxes to increase significantly for your heirs.

Options To Minimize Taxes

You may be able to avoid this by relinquishing control of the policy. One way to do this is by assigning the policy a new owner. If you do this, you will no longer be able to borrow against the policy, make changes or even make payments on the account. The new owner becomes responsible for everything.

Another option is to put the policy in an irrevocable trust. You still maintain some control over the policy while alive, but your trustee and policy beneficiary will have to agree to any changes that are made to the policy.

Cautions To Consider

Be careful when deciding who to give control of your policy or trust to. You won’t be able to change your mind once the policy changes hands. You need to be sure you are aligning yourself with someone who will honor your wishes and not make changes.

No matter what you decide, any change you make must be made at least 3 years before you pass away. If not, the value of the policy will automatically revert back to the estate and the total estate value and subsequent taxes will be calculated accordingly.

While you may not have any control over your will and assets being tied up in probate, having a life insurance policy will ensure your family doesn’t struggle financially during the process. Consider talking to an estate planning attorney to make sure your life insurance policies are set up to optimally create the peace of mind that you originally intended.

~Here’s to Your Financial Health!

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