Probate

117048243 7cc6bb0b87 300x199 Probate What is Probate?

Probate is a legal process to settle the estate of a deceased person. This process involves resolving all claims and distributing the deceased person’s property in accordance with the will. The court will decide the validity of a will.

A probate court examines the instructions of the deceased, determines who will be the personal representative for the estate, and examines claims by third parties and the interests of the heirs.

In some states, a married couple’s property is viewed as community property thus the estate passes to a surviving spouse without a probate.

If an estate is not automatically passed on to the surviving spouse, it is necessary to “probate the estate”, whether or not there was a valid will. Normally, a will names a personal representative who has the responsibility to carry out the instructions in the will. If there is no will, or if the will does not name a personal representative, the probate court has the authority to appoint one. Personal representatives may receive payment for their services and the court may require the personal representative to provide a bond to protect the estate from fraud or abuse.

Steps of probate

What goes to probate?

  • Some assets never enter probate because the asset has a contractual arrangement Examples of assets that have a contract are insurance policies, annuities, and accounts that name a beneficiary or pass ownership to someone because the asset was set up to be “payable upon death” to another individual.
  • Accounts can also be set up as “jointly owner with right of survivorship” which also is a contractual arrangement that avoids probate. Property held in a living trust also avoids probate. In these cases, the personal representative provides documentation to the court, and the property is prevented from entering probate.

How does the will get to probate?

  • Someone must file with the probate court. This also requires the filing of a request to serve as executor of the estate. Filing requires a copy of the will and death certificate. Once filed, the court will determine the validity of the will. The court appoints the executor (normally a family member of the names personal representative).
  • The executor place money in an interest bearing account and treat all beneficiaries fairly and equally. If an individual finds the executor is not carrying out their responsibilities they can petition the probate court to have the executor removed and they can hold the executor liable for any harm done to the estate.

What does the executor do?

  • Locates your assets and collects any debts that may you owed to an estate. Provides notice of your death to any creditors you may have
  • Finding and collecting your assets, including outstanding debts owed to you • Inventorying and appraising your assets
  • Paying debts owed by the estate
  • Filing an estate tax return and paying any estate taxes
  • Distributing the assets of an estate in accordance with the will
  • Providing a detailed accounting of the estate and its distribution to the court. (Note: this accounting becomes public information

How long does probate take?

  • Generally the probate process takes anywhere from a several months to over a year. There will be court costs and generally some form of attorney fees involved in settling the estate.

Avoiding probate

Probate generally lasts several months, occasionally over a year or two before all the property is distributed. Most states have a time limit for closing out an estate and generally all debts and taxes must be paid before the assets of the estate that are subject to probate are distributed.

One commonly used way to avoid probate is the creation of a living trust. With this form of a trust, the creator of the trust transfers property to the trust which he or she controls and can modify at any time. When the creator of the living trust dies those individuals who are named as beneficiaries acquire the assets as defined in the trust.

The estate passes directly from the trust to the beneficiaries. It does not go to probate court and does not become part of a public record.

Probate can also be avoided by setting up P.O.D (paid on death) designations on bank accounts and T.O.D (transfer on death) on brokerage accounts, 401ks and IRAs that pass automatically to designated beneficiaries. Real estate cab be passed on without probate through the establishment of a named beneficiary on a life estate deed.

Under this arrangement an individual can continue to live in the property until their death when it is then assed on to the beneficiary. Prior to one’s death, the establishment of a life estate deed would require the individual to obtain approval from the beneficiary if there is a need to sell the property.

The key to avoiding probate is having named beneficiaries on all assets, as is the case for life insurance. A common error in life insurance is naming the insured’s estate as the contingent beneficiary. Doing so will place the proceeds from that policy into probate. It is very important to keep the names beneficiaries on insurance policies, pensions, annuities, etc. up to date.

Life insurance, savings accounts, and joint tenancies with the right of survivorship are testamentary substitutes to avoid probate.

Avoiding probate does not eliminate estate taxes. Under the federal estate tax law as modified, included in the definition of a taxable estate are property held in a living trust, life insurance, payable on death or transfer on death financial instruments, and other property a party receives upon decease of the decedent.

Resources

As noted, the statutues pertaining to probate vary from state to state. It is important, therefore, that you become familiar with the laws in your state. Links to the probate laws for each state can be found on QuizLaw.com.

(photo: Joe Gratz)