Page 6 - Accumulating, Preserving, and Passing Wealth | Stifel

What Is Probate?

Probate is a court-supervised process that validates a will, ensures all assets are collected and all debts are paid, and
distributes assets to heirs or others. All wills are subject to probate. If you die intestate (without a will), your estate will
also go through probate.
Why might you want to avoid probate?

There are several important reasons you may want to avoid probate. First, probate can be a time-consuming process
that causes delays in the distribution of the assets to your heirs. In general, the probate process can last anywhere
from six months to over a year, depending upon the court’s schedule, the requirements imposed by the court, and
the complexity of the estate. Your heirs generally will not have access to the estate assets until final distribution is
made. Another reason to consider avoiding probate is to protect your privacy. Probate is a public proceeding.
Thus, information about the estate is a public record. By avoiding the probate process, privacy can be maintained
for you and your heirs. Finally, probate adds additional costs to the settlement of your estate. Probate fees generally
range from two to four percent. If the gross value of your estate was $300,000 and probate fees were two percent,
approximately $6,000 of your estate would be consumed in probate costs.
Does joint ownership allow you to avoid probate?

If you own property jointly, as joint tenants with rights of survivorship, the property can pass from one joint owner to
another without going through probate. Many clients own assets as joint tenants with rights of survivorship as a way
to avoid probate until the death of the last surviving joint tenant. However, when the surviving joint owner dies, or if
both joint owners die simultaneously, the estate is then subject to probate.
Are there disadvantages to joint ownership?

While joint ownership may help avoid some probate costs, there are several disadvantages you should consider. With
joint ownership, the amount of control you have over your assets is diminished. Because you are no longer viewed as
the only owner of the property, you may need the consent of the other joint owners when you want to do something
with the property. In addition, creditors of the other joint owners may be able to attach the asset to satisfy a debt.

There may be adverse tax consequences as a result of owning property jointly. There may be gift tax consequences if
you add or remove a joint owner from an asset. In addition, questions arise as to the cost basis of the asset upon the
death of one of the joint owners. For example, if a child inherited stock from his or her parent at the parent’s death,
the stock would receive a full step-up in cost basis, thereby limiting the capital gains tax due when the stock is sold.
If, however, the parent made the child a joint owner of the stock, contribution rules would apply, and the child would
have to prove that the parent contributed 100 percent of the value of the assets in order to receive a 100 percent
step-up in cost basis.

Equalizing the estate to heirs may also be difficult using joint ownership. If you are planning to leave an equal sum
to each of your heirs, equal amounts will need to be maintained in each joint account. As assets fluctuate in value,
maintaining that equality may be difficult.

If you are considering adding a joint owner to an account, you should seek the professional advice of an attorney
and tax professional to discuss the potential consequences.

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