In the most basic terms, probate is the process by which a court concludes your legal and financial matters after your death, and the way in which your estate is distributed. It may sound simple enough but, if it’s that simple why are people always saying you should avoid probate if possible.
The two most significant reasons why you want to avoid the probate process is that it could tie up your estate for months or longer, and it is expensive. In some states the cost of probate could take up to 5 percent of an estate.
A properly executed will may make probate less complicated but even with a will, it can be complicated, especially if there is a large amount of assets.
Here’s how it works. If you have prepared a will and have passed away, the person you named in your will as executor files papers in the probate court. If you did not prepare a will, a person appointed by a judge will file the papers. The executor demonstrates the validity of your will and presents the court with lists of your property, your debts and who is to inherit what you’ve left. Relatives and any creditors are then officially notified about the probate.
Your executor must find, secure and manage your assets during the probate process. The executor must make decisions during this process regarding how to pay your debts. This could include selling off real estate, securities or other property. It is often the case that immediate family members may ask the court to release short-term support funds during these proceedings, and the court will likely grant your executor permission to pay your debts and taxes and divide the rest among the people or organizations named in your will. Finally, your property gets transferred to its new owners.
There are some things you can do to avoid this cumbersome and lengthy process. You can start with a revocable living trust. There are advantages and disadvantages to a revocable living trust. The primary advantage is that after your death, the trust property is not part of your probate estate because it is technically owned by the trustee who can then simply transfer the trust property to the family or friends you left it to, without probate.
Another way to avoid probate as to some assets, bank accounts can be converted to payable-on-death accounts by filling out a form that identifies a beneficiary. When you die, the money goes directly to your beneficiary without going through probate. Assets such as life insurance and retirement accounts which have named beneficiaries also avoid probate.
A third option is joint ownership of property. Different forms of joint ownership provide a simple and easy way to avoid probate when the first owner dies.
You can also consider giving away property while you’re alive. If you don’t own the property when you pass away, probate is not necessary. Giving property away during your life can have gift or estate consequences however.
There are other options you can consider as well. But the best thing you can do to protect your loved ones after your passing is to take the time to do appropriate estate planning sooner rather than later. If you’re not sure how to take that first step, or if it’s been several years since you did any previous estate planning, I can guide you through that process.