When Elvis Presley died, his estate was worth over $10 million…. Then it went through probate.  After appraisal costs, legal fees, executor’s fees, and estate taxes, “The King’s” estate was left with only $3 million.  Because of improper estate planning, nearly 73% of Elvis’ estate was wiped out.  How can you avoid this?

Probate is the process of proving if a will is valid, clearing your estate of any debt, and making sure no one challenges it.  All of this takes place in court, only adding to the cost.  Will or no will, an estate must go through probate.  But there are ways to reduce or eliminate costs associated with the complicated legal process.  One of the most efficient is establishing a trust.  Assets and property with a properly drafted trust don’t have to pass through probate.  On top of that, your assets will be passed on much quicker and are more protected from creditors.

But trusts aren’t your only option.  If you a 401(k), an IRA, a life insurance policy, or all three, then you have three separate beneficiaries to name.  By routinely updating your beneficiary designation, you avoid unwanted inheritances and ensure your wishes are carried out.  Any assets that pass through beneficiary designations aren’t subject to probate, which makes their accuracy even more crucial.

You can also choose to own assets jointly with someone else.  From stocks to houses, if you own something jointly, that property is automatically passed on to the survivor.  Also, many brokerages and banks will allow you to name a beneficiary on your personal accounts by establishing a Transfer on Death (TOD) account.  It’s just another way to ensure that your assets will pass on relatively quickly and to exactly who you want.

One other option is to gift your assets to family or friends before you pass away.  By gifting the maximum tax-free amount each year, you reduce the amount of your estate.  This will, in turn, reduce the amount of probate costs, which are usually based on the total estate value.

By properly planning your estate with a financial professional, you can increase your chances of decreasing probate costs and avoid costly mistakes.  Wile not many people like to discuss their own mortality, the thought of family, friends, or charity losing large percentages of their inheritance and your estate to costs, fees, and taxes, should be enough for anyone to start planning.

The decision about how to designate beneficiaries for retirement plans, insurance policies, and other assets may seem like a very simple decision.  Chances are, you want your closest loved ones to to inherit any money you have accumulated during your lifetime, so just putting their names down on the appropriate forms should be the end of it, right?  Wrong.

You can name just about anyone or anything as your beneficiary, including individuals, charities, and trusts.  And when you name a beneficiary, those assets pass directly to whomever you designate without having to go through probate.  In addition to this though, remember that your beneficiary designations will override any bequests you have in your will.  So always make sure that your beneficiaries match up to your will.

The first common mistake people make is not re-assigning beneficiaries after they tie the knot.  There are major life events at which you should always review your beneficiaries: marriage, death, birth of children, and divorce.  Estate planners and financial advisers alike will advise that you make it a point to review assignments upon annual review of your finances to make sure that everything lines up and is copacetic.  By the same token, you’ll also want to review your beneficiary designations if you or your employer has recently changed retirement plan or insurance providers, as your beneficiaries may not carry over to the new policy automatically.

Before you make your beneficiary designations, you need to understand the tax ramifications the inheritance may cause for them.  If you are leaving your retirement plans to someone other than your spouse, you should sit down with them and an accountant and discuss how and when the money would get distributed (This will weigh heavily on the determination of the tax burden).   If you leave it to your spouse, however, they can more than likely roll it over into their own IRA and not have to pay taxes on it until the funds are distributed.  You also need to consider that leaving money to someone is considered income and you may be effecting their eligibility for government assistance if you leave them funds.  You must also keep in mind estate taxes: they will have to be paid by someone.

You also need to be very specific as to how you want your estate distributed.  You may think your beneficiary will just know what to do with your money, but they don’t.  You are, in most cases, allowed to name multiple beneficiaries and contingent beneficiaries and specify what percentage of your estate they will receive: take advantage of this.  Don’t just assume that estate planning is for the uber rich;  everyone needs a plan.