What is Probate and Can Probate Be Avoided?
Probate and the Probate Process
Many people have heard of Probate, yet not nearly as many truly understand what it is. Probate is a process that starts at your death. This process transfers title of your assets to your beneficiaries. A person’s estate is Probated if they die with a Will or they die intestate (without a Will). During this process, your creditors can make claims against your estate and anyone not satisfied with your Will can contest it.
The Probate process is different in each state; however, there are some fundamental steps that occur in every state.
If you die with a Will, Probate will follow these fundamental steps:
- When you had your Will written, you named an executor – your personal representative. Once you die, your executor typically files the Will and a petition with the Probate court in your county.
- Some state laws require the executor to locate the witnesses to the Will. Once found, these witnesses may have to state under oath that they witnessed the signing of the Will before it can be offered for Probate.
- Next the executor sends a legal notice to everyone in the Will, heirs, and others required by law, that it has been offered for Probate.
- Anyone not happy with your Will now has the opportunity to challenge the contents of the Will or the appointment of Executor.
- If no one objects to the appointment of the executor, the judge formally appoints the executor. If there is an objection, the judge has the option to choose someone else for this task.
- Next, the executor must make a list of all the assets and liabilities (debts) of the estate.
- Before any assets get transferred to heirs, the executor must pay all debts and taxes and file appropriate tax returns. The executor will also be paying certain expenses such as the burial, legal fees, etc.
- When all debts have been paid, the executor transfers the assets to the heirs.
- Once everyone has received their inheritance, the executor accounts to the court and the judge closes the estate and releases the executor.
If you die intestate, you will not have made plans for an executor, so the court will appoint an administrator. Once this is accomplished, the named administrator will follow the same steps as outlined above.
Why You Want to Avoid Probate
In some states, Probate is not traumatic if the estate is planned properly. However, there are many reasons why you might wish to avoid Probate. Let’s look at five of them.
- You may forfeit your privacy. The existence of your Probate proceedings will be published in local newspapers and anyone wanting to know more about your probate information can then find it at the local courthouse.
- It takes time. During the Probate process, your heirs have very little access to the assets of your estate. Your executor should have access, but your heirs don’t. The other problem is that the Probate process can be very long and drawn out. Although different from state to state, the average Probate period is at least one year.
- Probate costs money. There are many fees associated with an estate administration with or without Probate. These fees include attorney fees, executor or trustee fees, appraisal fees, and court fees. Additionally, your estate may have to pay taxes and creditors. Only after everyone else is paid can your heirs receive their inheritance. Probate fees vary from state to state, but here are the national averages according to a survey by the American Academy of Estate Planning Attorneys:
- Attorney’s fees: 1.5 to 4.0 percent of the value of your estate
- Executor’s fees: 1 to 5 percent of the value of your estate
- Overall Probate fees: 3 to 10 percent of the value of your estate
- Probate gives others the opportunity to contest and cause problems. Since Probate is public, creditors and predators can take advantage of your loved ones. There are people who prey upon the heirs of Probated estates. They may try to get the assets at a reduced cost and push the right buttons when your executor is working to pay off the creditors. They may try to buy off your heirs so that they can get to the money more quickly, but by doing so, your heirs lose a good portion of their inheritance. Even those you name in the Will may decide that you acted unfairly and contest the Will. This will cause more time and money to be spent on the Probate process.
- Probate can happen more than once. If you have property in more than one state, your estate will have to go through Probate in each state. This means that you will have Probate fees in each state as well. Additionally, some states have inheritance taxes that will be tacked onto the debt your estate owes before the title can be transferred.
Ways to Avoid Probate
There are several ways to avoid Probate.
Let’s look at these ways:
- With smaller estates, sometimes Probate is not required.
- With Payable-on-Death Bank Accounts, a simple form can be signed at the bank.
- With Transfer-on-Death Registration of Securities, a form can be signed through the broker, bank, or other institution.
- With Transfer-on-Death Registration for Vehicles, you can sign a form at the Department of Motor Vehicles. Currently, only a few states offer this program.
- With retirement accounts and life insurance, a form can be signed with the managing firm to name a beneficiary.
Additionally, you can:
- Give away your assets before you die.
- Take title to your property jointly with another person.
- Set up a Revocable Living Trust to hold probatable assets and all other probatable property.
The Revocable Living Trust
The Revocable Living Trust is considered a very effective estate planning tool and covers far more issues than any of the other Probate avoidance options listed above. In addition to avoiding Probate, a Revocable Living Trust does the following:
- Takes care of healthcare and financial issues if you become disabled
- Reduces estate taxes or possibly eliminates them
- Provides greater control over the transfer of your assets
- Can contain a ‘no contest’ clause to keep people from contesting your estate plan
- Protects your estate’s assets from your heirs’ creditors
- Maintains control of your assets while you are alive and once you are gone
- Provides for continuity of management of your assets in the event of your incapacity
With a Trust, you own nothing. Instead, your Trust owns everything and you remain in control since you are the Trustee and Beneficiary. Additionally, you can amend or even revoke the Trust at any time prior to your death. The big difference between owning the assets outright and owning them through a Trust occurs when you die. Since you technically did not own anything, there is nothing to go through Probate. Part of your Trust includes written instructions as to how to distribute your assets and those instructions are then carried out upon your death.
Probate is not always an easy process for your loved ones. It can be costly, time consuming, and can even produce unwanted hard feelings. Putting your estate in a Revocable Living Trust is a good way to avoid Probate and possibly the problems associated with it. As with any estate planning tool, be sure to ask a qualified estate planning attorney for help with this process.