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With people's retirement investments taking a hit in the financial crisis and recession, it's a good time to think about protecting what will be left after one's death. One way to do so is to plan ahead in order to reduce future probate cost, or even avoid probate altogether.
Probate is the legal process for distributing someone's property after they die. When a person dies, hopefully they have left a valid will. Probate rules vary by state, but in short, probate is the process through which property of the dead person is collected, certain debts are paid by the estate, and then property of the estate is distributed. Costs associated with going through probate court include court fees, executor fees, attorney fees, and sometimes appraiser fees or additional costs.
To help beneficiaries receive more of the property passed on, and receive it more quickly, there are methods to keep property from having to go through the probate process. Three primary methods are designating beneficiaries for certain assets, joint ownership of property with rights of survivorship, and putting property into revocable living trusts.
One simple step people can make to reduce probate costs is designate beneficiaries (and keep designations updated) for bank accounts, investment accounts and insurance policies. Retirement accounts, like an IRA or a 401 K, do not go through probate when they have a designated beneficiary. The same goes for life insurance policies. Additionally, payable on death (POD) accounts and transfer on death (TOD) accounts allow the contents of personal bank accounts or investment accounts to go straight to a designated beneficiary. Some states allow transfer on death auto registrations, preventing your car from having to go through probate.
By keeping your designation of beneficiaries updated, you can help your beneficiaries receive more of what you leave them and receive it more quickly.