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Bypassing a will might well shortchange your heirs

How can you help your heirs avoid the expense and trouble of probating a will and "keep the lawyers and government from getting a big haul out of the property?" one reader asked. Alternatives are available, but a will may still be the most logical and simplest way to distribute one's assets to heirs.

The expense and trouble associated with a will vary widely among the states.

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Probates in Eastern states with long-established court procedures tend to be more costly than procedures in Western states. Eight states, mainly in the West , are community-property states, in which each spouse owns half of the couple's property accumulated during marriage. When an estate is complicated with many heirs, properties, and complicated ownership, probating a will may be the only sure way.

Before you condemn all wills and all probate procedures, look into the actual procedures in your state. You may find that a will, despite its problems, is the least expensive method for conveying your property to children and others. If you find the probate laws and courts in your state reminiscent of the 19th century, you may want to look at these alternatives:

* A living trust can be established to control assets while one is alive and to disburse assets at death. You may act as the trustee in some states, but an attorney should set up the trust. At death, the acting trustee takes over management of the assets and conveys them to heirs in accordance with trust provisions without probate. Frequently the cost of setting up a living trust that becomes irrevocable at death is the least costly and simplest way to control property while one is alive and to distribute assets at death.

* Giving one's property to relatives or friends, or both, can be a simple and inexpensive method of conveying property. You give up title but not necessarily rights to use the property in your name while you live. Two considerations are involved: First, you can give property, and the title is transferred with no problem. Even if you develop a planned gift program, you should still have a will to cover the property not given away. Second, taxes can be sharply reduced through gifts. Each year you may give up to $3,000 to as many persons as you like, whether related to you or not, and no gift-tax forms are required. Your spouse may do likewise.

Large properties, particularly real estate, may be given and reported, and the gift/estate tax will be the same as if the property were included in your estate, with one exception. The value of the gift will be included in a total to arrive at a tax based on the value at the time of gift. Waiting until death could involve a larger value for appreciating assets.

For large estates, there could be advantages in not giving all property. Real estate, for example, is stepped up in value in an estate, and heirs may pay less capital- gains taxes at a later date. This benefit accrues without tax as long as the total estate tax remains within credits available. If you have questions about this aspect, you should consult a CPA or tax attorney.

* Joint ownership with right of survival is another alternative, but it is not one I recommend except, possibly, for spouses married for the first time. The reasons for this recommendation have been cited numerous times in previous "Moneywise" columns.

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