Limits on Small Estate Sizes to Avoid Probate Rules For Each State

When someone passes away their estate will usually have to go through probate.   Probate is a legal process where the courts officially handle the assets in a legal manner.   Probate can be costly with legal fees and/or a % of the estate gross being charged.   However if an estate is small enough then probate can be avoided.   The threshold on how small an estate has to be to avoid probate varies state to state based on each states law.

The Nolo site has links to each state in their article Small Estate Probate Shortcuts: Why Even Large Estates May Qualify  I went to each individual state page and got the numbers there.    Some of the numbers below are for a 'simple affidavit' and some are for the 'small estate' form of probate.   These are two different ways of either avoiding probate or doing a shortened probate.   They are different but for my purposes here good enough to show the maximum estate value below which you can avoid probate.    A list of state laws is at the Findlaw page State Laws: Estates & Probate

To be clear, this is not even close to legal advice.   If you're going through probate you ought to review your states current laws.   This list is bound to get out of date fast since 50 states tend to change laws once in a while so a couple years form now I bet 1-2 states will have changed it.

If you want the detail for your state then I encourage you to check the Nolo site : Small Estate Probate Shortcuts: Why Even Large Estates May Qualify 

Here is the list by state for assets below which you may be able to avoid probate :

Alabama	$3,000
Alaska	$15,000
Arizona	$75,000
Arkansas	$50,000
California	$150,000
Colorado	$60,000
Connecticut	$40,000
Delaware	$20,000
D.C.	$40,000
Florida	$75,000
Georgia	no debts*
Hawaii	$100,000
Idaho	$100,000
Illinois	$100,000
Indiana	$50,000
Iowa	$100,000
Kansas	$20,000
Kentucky	$15,000
Louisiana	?*
Maine	$20,000
Maryland	$50,000
Massachusetts	$25,000
Michigan	$15,000
Minnesota	$20,000
Mississippi	$12,500
Missouri	$40,000
Montana	$50,000
Nebraska	$30,000*
Nevada	$100,000*
New Hampshire	spouse/child*
New Jersey	$10,000
New Mexico	$50,000*
New York	$20,000
North Carolina	$20,000
North Dakota	$50,000
Ohio	$35,000
Oklahoma	$20,000
Oregon	$275,000*
Pennsylvania	$25,000
Rhode Island	$15,000
South Carolina	$10,000
South Dakota	$50,000
Tennessee	$25,000
Texas	$50,000
Utah	$100,000
Vermont	$10,000
Virginia	$50,000
Washington	$100,000
West Virginia	$100,000
Wisconsin	$50,000
Wyoming	$200,000

* Theres some details to add per states: Nebraska allows $30k of real property / $50k of personal property, Nevada allows up to $200k if theres no debts, New Mexico allows up to $500k for spouses only, Oregons total is $75k personal and $200k real.   Georgia seems to avoid probate if theres no debts, Nolo didn't have a page for Louisiana and New Hampshire seems to avoid probate entirely for spouses and children.

Some states may allow larger amounts than the figures given above based on circumstances.  The laws can get more convoluted based on various situations.   

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Return of premium term life insurance - Is it a good deal?

Return of Premium term life insurance is a form of term life insurance that promises to pay you back the premiums at the end of the term. This sounds almost too good to be true as if you're getting the insurance for free. Say you sign up for a 20 year return of premium term policy and pay $50 a month for the policy the whole 20 years. Then at the end of 20 years (assuming you didn't die) you'd be paid the $50 x 12 months x 20 years = $12,000.

Like most things that seem too good to be true there is often a catch. In this case the catch is basically just that return of premium policies have a higher fee than a standard term policy and while you're paying the insurance company premiums for years they are making interest on your money.

For sake of comparison, I got a quote on a term policy for 20 years. The standard term rate was $32 a month and the return of premium rate was $72 per month. That's a $40 difference per month or $480 per year. Lets compare the 2 options:

Standard term insurance: You pay $32 a month and get term insurance for 20 years. You take another $40 and put it in the bank at 6% interest. At the end of 20 years you would have $17,657 in the bank.

Return of premium term insurance: You pay $72 a month for your policy. At the end of 20 years the insurance company refunds $72 x 12 x 20 = $17,280

If you can make 6% or better on your investment then you would come out ahead with the standard term policy. Plus you would also have ready access to your money.

It appears to me that a return of premium term life insurance is not a good idea. Generally if something seems to good to be true then it probably is.

Term versus permanent life insurance : Which is best?

First of all what are term life and permanent life? Simply speaking term life insurance is insurance that covers a set period of time between typically 1 and 30 years. Permanent life insurance is structured to cover your entire life. A big difference between the two is that permanent life insurance such as whole life or universal life have a cash investment mechanism by which you save money into an account via your insurance. Term life insurance is just insurance and has no investment system.

Here is a Matrix comparing the insurance options.

Lets look at what other sources say about these two options:

Smartmoney compares Term or Whole life? and they say : "FOR MOST PEOPLE, the right type of life insurance can be summed up in a single word: term"

MSN Money has an article "The Debate over Term versus Permanent Life Insurance" and they say: " If the answer is less than 10 years, term is clearly the solution.If it is more than 20 years, permanent life is probably the way to go."

Suze Orman discusses life insurance at "Don't Let the Kind of Life Insurance You Buy Kill You" and says: "In my opinion, level term insurance is usually the best way to go for the vast majority of people."

Dave Ramsey talks about "The Truth about Life Insurance" and he concludes with: "Don't do cash value insurance! Buy term and invest the difference."


So Smartmoney, Suze and Ramsey all say that term insurance is the better option. MSN Money says it matters on how long you have the policy.

I'm going to agree with Smartmoney, Suze & Ramsey on this one. Personally I believe that term insurance is your best option in general. Permanent insurance only provides a savings account in addition to the insurance coverage and the returns are hard to figure and generally beaten by standard retirement investments in mutual funds.

How much life insurance do you need?

You should try to get enough life insurance to provide for your spouse and dependents financial needs if you are gone. You don't want them to be lacking financially but you also don't want to over spend on insurance coverage that isn't really needed. So how do you figure how much insurance you'll need? Start by looking at your annual income and your debts and assets and consider any one time expenses that you expect.

You can easily get a ballpark estimate of your insurance needs by figuring :
(Annual income * .7/ .04 ) + debts - assets + one time expenses = needs
This assumes that 70% of your current income would suffice to meet the needs of your surviving spouse and dependents.

You can make a more elaborate formula by considering other income streams and possible expenses.

Here are a number of calculators and tools that you can use to figure your life insurance needs:

• Forbes: Live Insurance Calculator [DEAD]- A simple calculator for annual income needs over a period
• SmartMoney worksheet
•  
• MSN : Life Insurance Needs Estimator
• Met Life - life Insurance Calculator 
• Erie Insurance Group : Life Insurance Calculator -A pretty comprehensive calculator
• Social Security Quick Calculator to estimate survivor benefits from SS for dependent children in the event of your death
• Insurance QA calculator

edit : updated 4/4/13  to fix links.

What is a Living Trust and do I need one?

If you watch Suze Orman at all you may have heard her recommend that people have a Living Trust. I'm not familiar with a Living Trust other than from hearing Suze talk about it. Suze says its good to help avoid probate. So what exactly is a living Trust and whats probate for that matter?

Living Trusts are a legal entity to put your assets in a trust while you are alive. It acts like a will does to handle transfer of your assets after your death. You put your assets into the trust but retain control of them as the trust owner. Living Trusts avoid probate and also can be used to manage your assets if you are incapacitated.

Probate is the legal process by which an estate is legally settled. After someone passes away their estate goes into probate. The probate process includes: filing the will with the state, inventorying assets, setting debts of the estate, paying court costs and attorney fees and then finally paying out estate to the heirs. Probate generally requires the help of a lawyer so it can be costly.

Generally you only put large assets such as real estate into a living trust. A Living Trust does NOT replace a will. You still need a will to assign guardianship to children and handle personal property and other assets.

I found this article at NOLO : Why You May Not Need a Living Trust. Basically in summary they say that if you are young (under 55), don't have large assets and married then you are less likely to really need a Living Trust.

Contrary to Suze, Dave Ramsey says that a legal trust isn't necessary He says living trusts are costly, cumbersome and really only useful for wealthy people and he concludes "..a will is really all you need."

There are other ways to avoid probate. Joint tenancy for real estate will automatically transfer ownership to remaining owners on deed and Pay on death accounts for bank accounts will name a beneficiary for the account.

Personally given the situation of my wife and I, I think we can do fine without a living trust. We can avoid most hassle with probate simply by putting our property in both our names and naming beneficiaries for our accounts.

Here are some additional resources:

• Living Trusts and avoiding Probate at NOLO
• Living Trusts Education Center at LegalZoom
• Wills and Trusts Special from Suze Orman