Navigating how to reduce costs in the probate process may seem like walking through a maze without a map. While there are several paths you may take as you plan on how to protect your family and assets, getting an early start on estate planning is a solid first step.
When you start to think about how to reduce probate costs, keep in mind that how much money an estate will spend in probate is generally determined by two factors:
- The clarity and legal validity of your instructions
- The size of your estate and debts
The purpose of this article is to examine how probate costs are reduced through leaving irrefutable and legally-binding instructions as to how your estate is disbursed, as well as “reducing” your individual estate by distributing it ahead of time. To learn more about the probate process in general, please see our article The Probate Process Explained.
What Exactly are Probate Costs in Texas?
Here are some examples of the fees incurred during the probate process in Texas:
- Court costs: From filing fees to the cost of publishing public notices, court costs can add up.
- Bonds: Executor, administrator, and trustee bonds are determined by the court and can cost thousands of dollars.
- Professional Services: There may be fees from accountants and appraisers brought in to determine the size of the estate. And, of course, you will want to be represented by an attorney. Keep in mind, an attorney’s litigation fees will always be more expensive than estate planning fees, so it is best to invest in this process early.
- Taxes: Texas does not have an inheritance tax; however, income brought in after death, properties, and retirement funds all have taxes that will be owed before transfer. Estates are taxed at higher rates than individuals, so it is best to avoid or mitigate losses under the guidance of an estate planning attorney.
As you can see, these costs can add up quickly. To avoid and reduce probate costs, contact us to start the estate planning process today.
Leave Clear Instructions
The longer probate takes, the more money it will cost. Whether it be through a will or a trust, the first way to reduce probate costs is by leaving clear instructions on how you would like your estate handled.
Is A Will Necessary to Reduce Probate Costs?
Yes, absolutely. Passing away without a will in Texas will result in an heirship determination and what is called a “No Will Tax.”
Creating a will is the best way to protect your legacy. Because the probate process involves proving the validity of a will in court and allowing challengers and creditors to come forward, it is best to keep a will updated and easy to understand.
Keep your family informed and speak openly about what you want. Even if you attempt to avoid probate costs through establishing a trust, or beneficiary designations, a valid last will and testament can help your family with the process and keep probate costs low.
To learn more about how establishing a will can help you and your family, check out our article – Top 10 Reasons a Will Is Essential.
Make a Transfer-on-Death Deed
Using a Transfer on Death Deed will allow you to pass your property to your heirs, skipping the probate process and eliminating probate costs. Our estate planning attorneys believe setting up a Transfer on Death Deed is just as important as setting up a will. Read more about this subject here: How to Transfer Property After Death Easily in Texas.
Set up Beneficiaries with Financial Institutions
Let’s not forget your financial accounts. Any funds you have with financial institutions can be subject to probate. Avoid this by setting up a beneficiary. Generally, there are two ways to do this:
- Transfer on death accounts: Banks, Credit Unions
- Transfer by contractual beneficiary designation: Life insurance policies, Retirement accounts, Annuity Contracts
It is essential that you set up your beneficiary directly with the financial institutions themselves. If you set up a beneficiary in advance, there is a very good chance that your loved one will not have to probate the estate – letters testamentary or letters of administration – to get access to the funds.
Do not forget to keep the beneficiary’s contact info updated! This is absolutely essential.
If your beneficiary moves location or changes phone numbers, you will need to update the financial institution as well. It may sound like a small thing, but if the bank can’t find your beneficiary, it becomes more difficult to transfer the funds. And do note, that a will does not override a beneficiary designation. For example, if you list John Doe as your beneficiary in your life insurance policy, but you state in your will that your life insurance shall be given to Jane Doe, the life insurance policy will control, and John Doe will get the life insurance money upon your death.
To reduce probate costs, prepare in advance. The cost of responsible estate planning with a trusted attorney will be far less than the fees your family will face in probate. To talk about an individualized plan that is right for you, schedule a consultation.
De-value Your Estate to Reduce Probate Costs
Probate costs are largely determined by the size of the estate. Simply put, one of the most straight-forward ways to reduce probate costs is to reduce the estate. Here are a few examples:
Pay or Consolidate Your Debts
During probate, any creditors you may have can come forward and claim a portion of your estate to satisfy any debts owed. Addressing these claims take time, which leads to a lengthier and more expensive probate process.
If it is possible to pay off your debts, it is a sure way to reduce probate costs for your family.
If it is not possible to pay off your debts entirely, consolidating them may benefit the process, in order to reduce the number of creditors coming forward. Fewer creditors means fewer costs.
Alternatively, if you have an experienced and knowledgeable estate planning attorney, such as those at Oxner Legha Law Firm, your estate may be set up to potentially avoid paying debts after you pass away. It pays to get the right advice!
Give Your Money Away
If you don’t want your family’s inheritance tied up in fees and taxes, a proactive approach is to start giving them money now. In Texas, as of 2022, you can make financial gifts up to $16,000 per year before being penalized on your taxes.
Donating money to a qualified tax-exempt organization of your preference is another approach.
Giving money away now is a simple and effective way of ensuring that your family will receive the most it can, without losing it in probate.
Decrease Your Individual Net Worth Through Joint Ownership
One way to reduce probate costs by way of reducing your estate is through something called Joint Tenants with the Right of Survivorship. This means making your heirs the legal co-owners of your accounts, properties, annuities, and businesses.
Through joint ownership, you can bypass the probate process. There are obvious risks, but, if your heirs are responsible and trustworthy, this method is worth your consideration.
Let Go of Any Out-of-State Property
If you have properties or businesses in other states when you die, this shall likely result in the need of a separate second probate in the state that the property is in. If you double the probate, you double the probate costs. Reduce probate costs by letting go of any out-of-state properties you may have.
If you must keep the property, there are some approaches that might benefit your family/heirs, such as the joint ownership method, mentioned previously. Another option is a beneficiary deed at time of death. Setting this up will most definitely require the assistance of an estate planning attorney.
How to Avoid Probate Costs Altogether
At this point, you may be wishing for a simpler solution to reduce probate costs. While the detailed steps listed above may protect parts of the estate, you may be wishing for a more complete and comprehensive method of leaving your estate to your family without the burden of probate costs.
Form a Trust
By creating a trust, you place your assets into an entity. This means your home, your car, and everything else you own are no longer owned by you – they are owned by the trust. There are three parties to a trust:
- Grantor/s – the party that sets up the trust.
- Trustee/s – the trust’s administrator.
- Beneficiary/ies – the parties that benefit from the trust.
Know that these parties can overlap. For instance, you can name your child as both the trustee and the beneficiary.
Keep in mind that any property you want to include in the trust will also need its legal ownership to be updated after the trust is formed. For example, if you want to include your home in your trust, you will need to update the deed to be owned by the trust, not you individually. Even if the property is included in the trust, if the deed still says it is owned by an individual, then the property is owned by an individual, and the property will still end up in probate.
By placing your assets in a trust, you will reduce probate costs by eliminating the need for probate altogether. To learn more about the process of forming a trust, schedule a consultation.
What if I Don’t Have That Much Money?
For some people, the cost of the probate process could be more than what they have. In Texas, if your estate is less than $75,000, your family may be eligible to pursue what is called a Small Estate Affidavit. This too can likely be avoided if planning is done early on.
Could a Lady Bird Deed save my heirs in probate costs?
Lady Bird Deeds, a.k.a. Enhanced Life Estate Deeds, may be appropriate if you are subject to Medicaid estate recovery. This is a unique situation, which would require a consultation with an attorney.
The Take Home
You do not save money by using an online will and estate planning website. Yes, you may have a will, but you won’t have an estate plan. Estate planning involves much more than a will and there are more factors to consider than those contained in a simple online will. Save money by using an experienced attorney at the Oxner Legha Law Firm, which will make the process of transferring your estate to your loved ones simpler, more cost-effective, and less stressful during a time when your family is mourning your death.