Estate Planning: How to Avoid Probate and Reduce Estate Tax for Beneficiaries

Estate planning can be a complex process, but it is essential to ensure that your assets are distributed according to your wishes and that your beneficiaries are protected. One common goal of estate planning is to avoid probate and minimize estate taxes for your loved ones.

In a recent inquiry, a couple asked about strategies to avoid probate and reduce estate taxes for their two adult children. They were considering using payable on death (POD) bank accounts and setting up bloodline generational trusts for their two houses in New Jersey and New York.

While these are valid strategies, it is important to note that estate planning should encompass a broader discussion with a qualified estate attorney. Probate is the legal process for settling the debts of a deceased person and distributing the remaining estate to heirs. In New Jersey, the process is overseen by the County Surrogate, and disputes are resolved in the Superior Court, Probate Part of the Superior Court.

There are ways to limit probate, such as transferring assets outside of probate through joint ownership with rights of survivorship, beneficiary designations, and payable on death (POD) accounts. Setting up a living trust and transferring assets into the trust during your lifetime is another effective way to avoid probate.

It is important to note that ancillary probate may be required if real estate is owned in a state outside of the deceased’s state of residence. For example, if you are a resident of New Jersey but own property in New York, ancillary probate would be necessary for the New York property. Putting the New York property into a living trust or a Limited Liability Company (LLC) can help avoid ancillary probate.

Different types of trusts can provide creditor protection, ensure that an inheritance stays in the family, and help minimize estate taxes. It is crucial to consult with an estate planning attorney to determine the best options for your specific circumstances and goals.

Overall, estate planning is a comprehensive process that requires careful consideration and professional guidance to ensure that your wishes are carried out effectively and that your beneficiaries are protected.