I. Have you ever wondered what happens to your assets and property after you pass away? ·
After you pass away all the property that you own and the debts that you have must be administered through a public court process called probate. ·
The word probate actually comes from the Latin word, as us lawyers always have to use Latin phrases, “to prove.” ·
You see, for the title to your property (whether that is real estate, your car, your bank accounts, etc.) to change to your heirs and family, a probate process must occur.
II. What is probate? ·
As I mentioned, before title to property can change to your family, that property must be administered through a process called probate. ·
Probate is a public court proceeding in which all of your assets, property, and debts are listed in public court documents. ·
There are a number of public court pleadings (i.e., inventory of assets, accounting, etc) which are filed with the court, as well as a number of court hearings that occur. ·
At the end of the court proceeding, the assets which remain are distributed to your family members either according to the will or according to state law, after all valid debts have been paid. ·
Example: o Imagine for a minute Jane, who passed away with a house and bank accounts. In order for Jane’s children to receive the house and bank accounts, Jane’s children had to go through probate before those assets could be transferred. ·
Many people think that if you have a will you do not go through probate. However, that is not true. Whether you have a will or not, your property will need to be administered through the probate court process.
III. Why does probate exist? ·
Probate Court to ensure debts are paid and assets are distributed either according to law or according to a person’s last will and testament.
Probate court is there to make sure that if a person leaves a last will and testament, that the will is determined to be valid according to law. Remember the word probate I mentioned early is Latin for the phrase “to prove.” Well, the will needs to be proven to be legally valid. ·
Probate court is also there to settle any disputes and disagreements among the heirs or beneficiaries
IV. “I hear probate is bad?” ·
Probate is time-consuming. This means that there will be delays for asset distribution to heirs or beneficiaries of the estate. ·
The average probate case can last anywhere from 6 months (more likely a year) to two years or more. ·
Even if you have a will, the will must be admitted to probate. ·
The executor that you name in your will has no power until the will is admitted to probate and the executor is given authority by the court to act on behalf of the estate. ·
Probate is also costly. Court costs, attorney fees, and executor fees can add up quickly ($15,000 or more even for simple estates is not unheard of). ·
Probate is also a public process. Every asset you own and debt that you have will be listed on a public court document than anyone can look up regarding your probate estate.
V. Should you avoid probate? ·
Having practiced as an attorney since 2011, I have seen both simple estates and complex estates go through the probate court process. In nearly every case, my clients have said:
o This took a long time
o This process was extremely expensive
o I wish mom or dad knew how to avoid this ·
In general, I have found that families which plan to avoid probate enjoy a simpler estate settlement process than those who go through probate
VI. Ways to avoid probate ·
Joint Ownership
o Any assets held jointly with right of survivorship will not go through probate.
o Instead those assets will immediately go to the surviving joint-owner
o Think, real estate owned by a married couple with right of survivorship. The surviving joint owner takes full ownership outside of probate.
o The same can be true for jointly held bank accounts ·
Beneficiary Designations
o Designating beneficiaries on your investment accounts, retirement accounts and life insurance can ensure that those assets do not go through probate as well.
o Those assets pass to the named beneficiary outside of probate. ·
Living Trusts
o Living trusts are a way to avoid probate as well.
o I would say that most of my clients prefer to establish a living trust.
o A living trust is a legal document and entity in which a person (called a grantor or settlor) establishes a legal entity known as trust and transfers their property to be managed by another person (called a trustee) until a predetermined event, usually the death of the grantor or settlor.
o Upon death, because the property was managed by the trustee, the property is transferred to the beneficiaries, not through probate, but according to the terms of the trust.
o Also, in most circumstances, the grantor or settlor is also the initial trustee. Therefore, day to day, nothing really changes. You continue to access and manage your property as you always have.
o The only difference is that upon your death, a successor trustee, usually a spouse or an adult child, will step in and distribute the property to the beneficiaries named in the trust agreement.
o Trusts can also distribute property in ways that a will and probate cannot:
§ A trust can delay distribution to children and family members
§ Let’s say you have concern regarding an adult child’s spending or other issues. You can delay the distribution to that child over time as a way to protect their inheritance.
§ Or, let’s say that you have minor children – a trust can ensure that the successor trustee manages the trust property. If the property was distributed to minor children outright through probate court, your surviving family would have to go to probate court and establish a guardianship over that minor child or children until that child reaches the age of 18.
