Estate Planning vs. Probate
A recent article on wealthmanagement.com discussed how most American’s inheritances go through probate due to lack of preparation of an estate plan. From the article:
“Surveys confirm that avoiding probate is the primary reason that clients engage in estate planning today. Yet, the estates of the majority of Americans will go into probate.
In March 2014, Trusts & Estates published the findings from the 7thAnnual Industry Trends Survey conducted by WealthCounsel and WealthManagement.com. The survey looked at the business challenges of estate-planning professionals and provided insight on what motivates clients to engage in planning. The survey found that the top three reasons that clients engage in planning are to: (1) avoid probate (59 percent), (2) minimize discord among beneficiaries (57 percent), and (3) protect children from mismanaging their inheritances (39 percent).
Yet, in spite of the survey results indicating that probate avoidance is foremost in the mind of those who engage in planning, the bad news is that the majority of Americans don’t plan because they lack awareness as to why they should. (See 4th Annual Industry Trends Survey.)”
Here are a couple of beneficial reasons why estate planning should be done:
Time – The probate process can be very time consuming. By time, we are referring to the amount of time it takes to fully administer the estate, and the amount of time the personal representative has to take in order to fulfill all of their duties. On average, it takes between six months to one year to fully administer an estate, the length of time varying on the complexity of the estate and the assets that need to be transferred. The personal representative is normally a surviving spouse, child, or beneficiary of the estate. They have their own lives, children, and jobs to deal with. Taking on the responsibility of being the personal representative is like a second job. Documents need to be signed and matters need to be dealt with in court, sometimes in which they have to appear personally.
Economic Benefit – The probate process can be very costly to the heirs. Most probate estates require the assistance and guidance of an experienced probate attorney to assist the personal representative in administering the estate. Legal bills can rack up quickly and cut into a significant portion of the assets of the estate. If the estate finds itself in any litigation, the legal bills can really start piling up. Planning properly can potentially save heirs thousands of dollars in attorney’s fees. Based on the client’s individual situation, there are various planning techniques that can be used to avoid probate such as trusts, gifting, and titling of assets. A common misconception is that estate planning can be very expensive and is only for the wealthy. This is in fact not the case. Not everyone needs a trust, but as discussed above, there are other affordable planning techniques that can be used to avoid probate.