What is probate? Why is it beneficial to avoid it? Can Roth IRAs make probate unnecessary? When considering estate administration, wills, trusts, and estate executors, there are many questions and concerns that may arise. Having all the information regarding your situation is crucial, as is consulting with a legal professional with experience and knowledge in every area of probate.
Probate is a legal process that includes inventorying the estate, paying taxes and debts, managing the estate, and distributing the remaining assets to the beneficiaries. If a complication arises such as the family disputing the will or questions the validity of the will, formal probate may be required. In cases where the will is valid, informal probate may be an option and most of the court involvement will be diminished.
There are several options available for helping your family avoid dealing with probate. One tool that may people are unaware of is Roth IRA (Individual Retirement Arrangement). Under US law, this retirement fund is not taxable and can be inherited after death. To retain the benefit of being tax-free, however, there are certain qualifications that have to be fulfilled.
One of the conditions that must be met is income. In order to put the maximum amount in the IRA, the modified adjusted gross income must fall below $105,000. Joint filers can have an income of up to $169,000. There is also a limit regarding how much a person can contribute to the fund. In 2010, the total amount was $5,000 for the year or $6,000 if the individual was over the age of sixty. Although the money put into a Roth IRA is not tax deductible, the money you withdraw from the account is not taxed. Because of this advantage, you will end of paying considerably less in taxes over the years. As the account grows, the amount owed in taxes will not.
Roth IRAs do not have a time limit on withdrawals. While other retirement accounts require the individual to start withdrawing when they reach a certain age, a Roth IRA will allow you to keep the funds untouched for a beneficiary. A will or trust will not be required; the beneficiary will simply bring their personal ID and use the money that was left to them, without having to pay tax. They will have the option of receiving the funds in a lump sum, or receiving it in periodic payments and then transferred to a secondary beneficiary after their death.
Roth IRAs are not the only way individuals and couples seek to help their families by avoiding probate. Another tool that can help is a trust. A trust is an estate-planning tool that can help manage an estate after death as well as during life. The creator of the trust is known as the trustor or grantor. When they choose a beneficiary to leave their money to, they transfer legal ownership of their funds to a trustee. This could be a company or an individual and they will be responsible for managing the funds until it is inherited. They are required to act in the best interests of the beneficiaries and are usually paid for their services.
If you would like to learn more about ways to avoid probate, you are encouraged to speak to a probate attorney. As laws and regulations can change depending on what state you live in, a legal professional can be of great benefit. Do not wait to create plan to provide for your family.