Estate Planning Strategies to Avoid Probate in Maryland

January 16, 2016

estate planning

If you’ve researched estate planning in Maryland, you  have probably come across the term “probate.” In fact, you may have read numerous articles describing probate as something you should avoid at all costs. But is it true? Read on to find out whether you should make arrangements to avoid probate and how to do it.

What is Probate?

Probate is a legal process that deals with a person’s estate when they die. Whether you have a Will or not, some of your assets may still have to go through probate. During a typical probate process, the probate court makes sure that the Will (if it exists) is valid. Then they catalogue and assess the estate of the deceased to determine which assets are subject to probate. These assets are then used to pay off debts and taxes. Whatever remains gets distributed according to the Will, or Maryland intestate law if there is no Will.

Of course, a judge doesn’t do all of the above personally. A Will (or a judge, if there is none) typically appoints a personal representative who will oversee a big portion of the probate.

Why You May Want to Avoid Probate

Although probate is probably not as terrible as some articles paint it, it can become a big pain. In the case of a large estate with assets in different states, probate may take a long time and can get very expensive. Even a relatively simple estate usually takes between 6 months to a year to probate. If one of your heirs decides to sue the estate or other heirs, this can further complicate and drag out a probate, sometimes for years.

The personal representative has a big job, and if they do it incorrectly—don’t pay all legitimate claims, pay claims that didn’t need to be paid, or fail to file final taxes for example—they can be held personally responsible. Furthermore, probate is a public affair, meaning that all estate documents and actions can be viewed by anyone, including your relatives or neighbors. Whether you have a large or small estate, you should consider the following strategies to avoid probate.

Probate Avoidance Strategies

Named Beneficiaries

Certain types of assets, such as life insurance policies and retirement savings accounts, are typically designed to pass onto the named beneficiary in the event of your passing. When there is a named beneficiary, this asset usually passes outside the probate purposes.  You should make sure you know who the beneficiaries of your accounts are and update them as necessary, so that your funds don’t go to the wrong people. Too many people have accounts or policies that still name an ex-spouse or deceased person as beneficiary.

You can also do this with stock and bank accounts. Bank accounts can be designated “payable on death” or “POD” and have a beneficiary who can take control of this account after presenting your death certificate and their ID. Often stock and securities can be made “transferable on death” or “TOD.” However, real estate deeds and vehicle titles can’t be transferred on death in Maryland without other legal documents.

Right of Survivorship

The right of survivorship typically applies to married couples when they have jointly owned assets. These assets may include real estate, stocks, vehicles, etc. If one of the owners dies, such property will automatically pass to the surviving spouse. However, if you jointly own assets with someone other than your spouse, you may need to make certain arrangements if you want them to inherit these assets under the right of survivorship. For example, if you bought a house together with your partner, you may want to make sure that the deed describes you as “joint tenants with the right of survivorship.” If that co-owner is not a spouse or relative, in Maryland the house may be subject to a 10% inheritance tax, unless you have a properly executed Domestic Relationship Agreement.

Life Estate Deeds

If you own real estate by yourself, there are ways to ensure that the property can pass to another person without going through probate. It is usually not a good idea to just “put someone’s name” on your deed—what you are doing is giving them ½ your property, and they can refuse to let you sell the property or may be able to force a sale themselves. Also, there may be unexpected tax consequences, as well as legal issues if that person is sued, goes into bankruptcy or gets divorced. A Maryland attorney well versed in estate planning can advise you as to types of Life Estate Deeds that allow the property to pass directly to someone without probate, while still protecting that property for you during your life.

A “Living” or Revocable Trust

A revocable living trust is a common method many people use to avoid probate in Maryland and in other states. The “living” part means that it needs to be established while you are alive and that you have control over your assets during your life. However, by transferring your assets to the living trust and then naming a successor trustee, these assets usually pass outside of probate. A trust is not for everyone—they do cost more than a Will, and for someone with few assets setting up the trust may actually cost more than your family would pay for probate. Also, a typical living trust does nothing to reduce the amount of estate taxes you might have to pay—you will need to use separate strategies for that. However, for some people—people owning property in more than one state for example, or people with children by a prior relationship—a Revocable Trust can be an excellent estate planning tool.

Moving Forward With Avoiding Probate

It’s important to consult with your Maryland estate attorney before you make any moves to avoid probate. Keep in mind that setting up a trust or naming beneficiaries for your policies doesn’t mean that you no longer need a Will—there are sometimes assets that you obtain afterwards or that are payable to your estate.

It is also important to have a durable power of attorney so that a trusted person has access to your money during your life in case you are unable to take care of yourself. An estate planning attorney can make sure that all of your estate planning documents agree with each other, as inconsistency may lead to confusion and cause your heirs to sue each other, or your estate, over inheritance they think they deserve. Sometimes people who try to do complicated estate planning by themselves cause a bigger problem than probate would have. The cost of hiring an experienced estate planning attorney can save a lot of money in the long run.

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