The process of probate involves a judge reading the will (or following intestate laws in the absence of a will) and determining who gets what. This process is public, which reveals to the world what you owned. It can also be expensive, costing as much as 15 percent of the value of the estate! Finally, it can be time-consuming. It might take a year or more for your heirs to receive what is coming to them.

Trusts

An important aspect of estate planning is minimizing how much of your assets must go through probate. This is primarily accomplished through beneficiary designations and secondarily through revocable trusts. Retirement accounts, life insurance policies, annuities, and many other types of financial accounts allow you to name beneficiaries. All of those assets pass outside of the probate process quickly, inexpensively, and without public knowledge. Payable-on-death accounts at a bank may also allow you to have additional FDIC coverage on your assets.
Revocable trusts are trusts that are used to pass assets outside of the probate process. Many wealthy people, particularly elderly ones, have their homes, vehicles, and even financial accounts owned by their revocable trust. Since it is revocable, they have full access to the assets at all times and can remove them from the trust if needed. But when they die, the assets are passed in accordance with the terms of the trust.

Taxes

A lot of doctors worry about the “death tax” (ie, estate and inheritance taxes). However, the truth is that under current law, few physicians will have to worry about estate taxes. They simply do not earn enough, save enough, or invest well enough to build their estate to an amount greater than the federal exemption amount. In 2017, the federal exemption before the estate tax applies is $5.49 million. As long as the total value of your estate is below that amount at your death, you will not owe any federal estate tax. The exemption amount is doubled if you are married. The exemption amount is also indexed to inflation under current law, so it should double every 20 years or so. Unfortunately, some states have their own estate tax and often with a lower exemption amount than the federal law. These states include Connecticut, Delaware, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Washington, and the District of Columbia. Maine, Massachusetts, New Jersey, Oregon, and the District of Columbia have particularly low exemption amounts ($1 million or less).