Estate planning is an extremely important part of securing your family’s financial well-being. Two of the most common mistakes people make in their estate planning (or lack of) is avoiding probate and gifting their assets. Both of these mistakes can be very costly to your loved ones and become more of a burden than you realize.
There are many people who believe probate should be avoided because of the time and money needed to invest in the process. However, the advantages to probate outweigh the cons. If you don’t know what probate is, simply put: probate is the legally recognized process to get the titles to all the assets you owned on the day you die. For example, if you have a car in your name, that car is subject to probate. Probate allows the courts to get transfer the title to someone else’s name, such as your spouse or child. Especially if your beneficiaries want to sell your assets after you pass, having probate will allow them to do that in a timely manner.
If you don’t have probate, it can be messy to transfer the title of an asset. In some counties, it can take around 30-60 days just to get paperwork prepped and filed and appointed. This process can go as long as 90 days unless you can convey the assets somehow. This extended time period can cost your loved ones a significant amount of money as lawyers have to re-prioritize for premiums.
Another mistake is trying to avoid probate by putting their children on the title of their assets before their passing. This is a TERRIBLE mistake for two reasons. Let’s say you decide to put your son on the deed to the house. What people don’t always understand is that by putting him on the deed, you are actually gifting him ½ of the house’s worth. As with any financial gain, the IRS can tax you for that gift. So if your home is worth $200K, you are gifting your son $100K and he will have to pay 40% tax. If you have already put your child on the deed, go back and amend it. You don’t want to put your children in an ownership position. For the same reasons, you shouldn’t put your child on your bank account either. This is similar to the situation above where the account may be considered a gift to the child, so gift taxes would be due in that year.
If you would have chosen probate in this situation instead, the probate would transfer the title to your child’s name upon your passing, and then your child would not have to pay capital gains tax if the child decides to sell the home.
Another consequence of gifting assets is the risk of unequal distribution of your assets. When one child is on the deed or bank account, they have the power to decide where the funds go – it is no longer determined by your will. The child who now owns those assets can decide where they are distributed or sold. This can cause many issues, especially if the child decides not to distribute to your other loved ones (which does happen often, unfortunately).
Hiring an experienced estate planning attorney can help you avoid these mistakes as they counsel you through the process. Your loved ones’ financial security and peace of mind depend on it! Call us today at (405) 703-4567 for the best in probate representation.