Strategies for Protecting Inheritance and Estate Assets

Inheritance refers to property and financial assets gifted through a decedent's last will and testament or trust. Last wills must be validated through the probate process which is required in all 50 states. On average, probate extends for three to six months, but can take up to two years or more if heirs contest the Will or fight over inheritance property.

In many cases, inheritance cash is used up during the probate process. All outstanding debts must be paid, along with legal fees and estate settlement costs before distribution of inheritance property occurs. When probate drags on for an extended period estate assets may need to be sold to pay estate related expenses; leaving nothing for beneficiaries.

A variety of options exist for protecting inheritance and estate assets. It is best to engage in estate planning probate to determine which strategy offers the best protection. The type of asset protection strategy will depend on estate value and type of inheritance property.

One strategy involves gifting money or property prior to death. Individuals diagnosed with terminal illness often use this strategy to ensure beneficiaries receive intended gifts. The IRS allows gifting up to $12,000 per individual or $20,000 per married couple, per year.

The benefits of inheritance gifting include: knowing the property will be given to the intended beneficiary; keeping estate assets out of probate; and reducing inheritance taxes.

The second inheritance protection strategy involves establishing a trust. Several types of trusts exist, so it is best to consult with a professional estate planner or probate lawyer. The primary benefit of trusts is inheritance property is exempt from undergoing the probate process.

The first step of setting up a trust involves executing a last will and testament and appointing a Trustee. Estate management duties for trusts are generally less involved than administering probated estates. Trustees are responsible for filing legal documents and distribution of inheritance property.

Individuals whose estates are valued below $100,000 might be able to avoid probate by establishing payable on death and transfer on death beneficiaries. Payable on death is frequently used with personal and business bank accounts. Transfer on death beneficiaries can be assigned to life insurance policies, retirement accounts, and financial portfolios.

All that is required to establish POD or TOD beneficiaries is to fill out a form provided by the financial institution or broker where funds are held. Account holders can designate as many beneficiaries as they need, along with assigning a percentage of funds to be distributed to each beneficiary.

For example, an individual has a spouse and three children and wants to equally divide funds from checking, savings, and financial portfolio. She would fill out beneficiary forms to include beneficiary names, address and social security number.

Beneficiaries do not have access to funds until death occurs. Upon death, financial institutions must provide date of death values which are submitted to the county tax assessor office. As long as decedents' do not owe back taxes, inheritance money can be distributed as soon as the tax assessor signs off on the tax form. If outstanding taxes are owed, the decedent's estate must submit payment before funds can be distributed.

Estate planning is vital for protecting inheritance property. Most estate planners and probate attorneys offer complimentary consultations to help individuals determine which asset protection strategies are best suited for their needs.