What are the advantages of probate?

One advantage is that there are enforceable rules to make sure that your assets go where they are supposed to go.  This gives your beneficiaries an easier way of dealing with a sibling that obtains control over your assets but won't give the other beneficiaries any information about how the assets are being used.  This kind of problem is more common in "blended" families, but occurs in traditional families as well.  In a probate proceeding, written notice must be given to all of your heirs and beneficiaries about what is going on in the administration of the estate, and they have a chance to object and ask that a judge decide what should be done.

Another advantage is that, because probate statutes give creditors a rather short period of time in which to make claims against your estate, the estate can actually be settled more quickly than if there is no probate.  Without a probate proceeding, creditors have a longer period of time in which to sue your beneficiaries.

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What are the disadvantages of probate?

There are court costs, attorney fees, and notices have to be mailed out to heirs, beneficiaries, and other interested parties.  There are, however, different levels of formality in probate proceedings, and for those that qualify to file informally, the costs will be lower.  Also, the Minnesota legislature recently enacted a change that significantly expands the availability of a very informal procedure for collecting assets for small estates.

What about taxes – Will my estate be taxed?

Most estates will owe no estate taxes (also called “death taxes”).  That’s because there’s a threshold amount below which there is no estate tax.  For Minnesotans, the threshold for Minnesota estate tax, for people who die in 2018, is $2.4 million.  This amount is scheduled to increase by $300,000 per year until 2020, when it will reach $3 million and stay there for the foreseeable future.  If the total value of all of the assets in your estate, including the death benefits under any life insurance policy, total less than the applicable threshold amount, there will be no estate tax.  If it is above the threshold amount, the tax on the excess will be between 13% and 16%.  There is an unlimited marital deduction so that any assets that pass directly to your spouse will not be subject to estate tax.  At the federal level, the estate tax exemption was increased in 2017 to $10 million.  This federal amount is indexed for inflation, making the 2018 exemption amount $11.18 million for decedents dying in 2018.  Because of the high exemption amount, about 99.5% of all estates will not owe any federal gift/estate tax.

How can I avoid estate taxes?

There are estate planning techniques that spouses can use to minimize estate taxes on the second death.  (It’s easy to avoid them on the first death, but that may end up resulting in more than necessary estate taxes on the second death).  These techniques consist of placing some assets in a “credit trust” or “bypass trust” that can be held for the benefit of the surviving spouse but are not actually put in the name of the surviving spouse.  In addition, there are other techniques that can be used by married or unmarried individuals such as gifting, bargain sales, and certain types of trusts.  It is important to get competent and up-to-date legal advice on these questions.

How can I avoid Probate?

Probate is avoided on an asset-by-asset basis.  Some types of assets automatically pass outside of probate, as long as there is a designated beneficiary other than your estate -- these include life insurance, retirement plans and annuities.  Other types of assets, such as real estate and bank and investment accounts, may pass outside of probate if they are titled in joint tenancy or have a POD (pay-on-death) or TOD (transfer on death) beneficiary named.  Revocable trusts, also called Living Trusts, can be also be used to avoid probate by transferring assets into the trust while you are still living. 

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