The Virginia probate process is time-consuming, costly, and stressful. Your estate is protected by your estate plan, but is it protected from probate?
A Virginia will doesn’t provide automatic probate protection, and without the proper precautions, your relatives and beneficiaries may be able to contest your final wishes.
In probate, the fees accrued by legal representation and administration amount quickly.
Often, these fees are assumed by the assets of your estate before distribution to your beneficiaries.
As a result, the assets you intended to protect will be sold or liquidated before reaching your beneficiaries in order to cover the legal fees.
However, there are a number of ways you are able to protect your estate from going through probate.
Instead of establishing a will to protect your property, consider establishing a trust.
There are two types of trusts to choose from for the sake of avoiding probate: irrevocable, and revocable living trusts.
Irrevocable Living Trusts
An irrevocable living trust is, as the name indicates, irrevocable.
Once your trust is formed and your property is transferred to the ownership of the trust, it is legally binding.
The property you are placing in the trust legally becomes trust property that you do not control.
The terms you set in your trust documents indicate how you want your trust assets managed.
You cannot terminate, change, or manipulate the trust in any way once it is in place.
Your irrevocable living trust protects your estate from probate because those assets are not included in your estate at your time of death.
The assets are legally owned by the trust you have formed, and therefore, are exempt from your estate in the event that probate is required.
Your trust assets pass directly to your beneficiaries, and are not subject to estate taxes.
Revocable Living Trusts
Similarly to an irrevocable living trust, a revocable living trust assumes legal ownership of your property in order to exempt it from probate on your estate.
However, you can terminate, change, or manipulate your revocable living trust.
Upon your death, your property passes into the revocable living trust.
Your trustee must then transfer your property out of your revocable living trust for distribution to your beneficiaries.
Your trustee, and the act of transferring your trust property, will accrue fees. These fees are settled by your trust property and remaining estate.
One of the main qualities a revocable living trust carries is the role of the trustee.
When your property is transferred into your revocable living trust, your trustee manages your property on your behalf.
The trust outlives you, and your surviving trustee is responsible for making the decisions of your estate.
Your trustee takes control of your assets and distributes them as your trust designates to your named beneficiaries.
2. Tenancy Agreements
A joint tenancy agreement allows you to co-own property with another named owner.
Your joint tenancy excludes the property from your estate upon death, automatically transferring ownership to the surviving c0-owner.
The automatic transfer of property to your co-owner, along with the exclusion of the property from your estate, exempts that property from probate proceedings.
You are also able to transfer your share of ownership to a beneficiary, if your joint tenancy agreement permits.
Tenancy by the Entirety
A tenancy by the entirety agreement – generally sought by married couples – passes sole ownership of your property to your surviving spouse.
With tenancy by the entirety, you are unable to transfer the property outside of the partnership.
In other words, your share of the property must pass on to your partner.
Among spouses and business partners, this is known as the right of survivorship, and it is a transferral method commonly used in order to avoid estate taxes and probate.
3. Designating Beneficiaries
Protecting your assets from a lengthy probate process could be as simple as creating a will and naming your beneficiaries.
Leaving your assets intestate, or without a will, requires probate proceedings to designate your beneficiaries.
In that case, the court appoints your beneficiaries, divides your assets, and distributes your estate as fairly as possible.
Dying testate, or with a will, allows you to designate your estate beneficiaries.
While a will may also make your estate subject to probate proceedings, by making your wishes clear in a will you can avoid a longer and stressful probate process.
This means that your estate assets are more likely to go to your beneficiaries than to legal fees.
After drafting your will it may be useful to discuss your estate divisions with your beneficiaries in order to avoid any unpleasant surprises later.
It’s always possible that someone will choose to contest your will, which leads us to our next section.
4. No-Contest Clause
A no-contest clause is one method of preventing your will from being drawn into a long probate process.
The beneficiaries of your estate – named in your will – are notified of their inheritance by the court.
If one of your beneficiaries disagrees with your property designation, they have the ability to contest the will in court.
However, if you have included a no-contest clause in your will, your beneficiary is risking their inheritance.
If your beneficiary is unsuccessful in contesting your will, they willingly forfeit their inheritance.
The property reverts into your estate and is distributed to your remaining beneficiaries, or a named alternate beneficiary, if applicable.
5. Lifetime Gifts
Another method of removing property from your estate, and therefore avoiding probate, is to gift your property during your life.
Gifting property out of your estate helps you manage your estate’s overall value.
If you are able to gift property from your estate during your lifetime, the need for probate lessens.
When you gift your property, it is no longer considered a part of your estate.
You no longer own any legal rights to your gifted property.
Therefore, that property is exempt from any probate proceedings on your estate.
While this method doesn’t protect your entire estate, it does protect particular assets from ever reaching probate.
6. Pay-on-Death Accounts
A pay-on-death account (POD) operates as the name suggests.
You establish your account, deposit your assets, and name your beneficiaries.
When you die, the assets of your POD account are automatically distributed to your beneficiaries.
You risk very little establishing a POD because your beneficiaries have no access to your assets while you are alive.
The account carries flexibility that allows you to change your beneficiaries, terminate the account, and provides accessibility at any time.
You are able to deposit and withdraw from your account at any time. However, fees will vary depending on your managing financial institution.
Although your POD is included in your taxable estate, it is not considered estate property.
Therefore, your POD account assets are exempt from probate proceedings.
Probate is a useful legal process, but in some cases, you want to avoid it.
You may find it helpful to use some of the strategies listed above in your estate plan.
However, protecting your estate is a tedious process that takes time and legal guidance.
Schedule a consultation with our estate planning attorney to discuss how you can protect your estate from probate.