What is Probate and Why Should I Care?
What is Probate?
When a person dies with a will, their estate does not automatically transfer to the beneficiaries named in the will. The estate must first go through a legal process called probate. Probate is designed to: (1) prevent fraud, (2) pay creditors, and (3) properly distribute remaining assets.
Depending on the circumstances, the probate process can take a few months or several years. First, when a person dies and the court is presented with a death certificate, the court will validate the will if there is one. If there is no will, the court will appoint a personal representative to oversee the administration of the estate during the probate process. Next, the personal representative will account for all property and assets in the estate, determine their value, and inform creditors and beneficiaries of the decedent’s passing. Creditors must be paid first. Therefore, outstanding debts and fees, funeral expenses, and probate administration costs will be paid before anything can be distributed to beneficiaries. Once remaining assets are transferred to beneficiaries, the probate process is complete and the estate can be closed.
Downsides of Dealing with Probate
One of the intended purposes of probate is to ensure that assets are distributed according to a person’s will. However, there are downsides to probate that people typically wish to avoid. First, the probate process is time consuming and expensive. Probate can greatly delay beneficiaries’ inheritance. The cost of these proceedings and related fees can considerably cut into beneficiaries’ inheritance. Second, probate is a public process. People are often uncomfortable with details of their estate being public record. Beneficiaries can also be uncomfortable with their inheritance being public knowledge. Finally, after the death of a loved one, the last thing family members want to deal with is meetings with attorneys and court proceedings. The probate process can be additional stress on a family during an already difficult time.
How to Avoid Probate and Non-Probate Assets
Not all assets have to pass through probate. Probate can be avoided by creating a trust. A properly funded trust avoids probate because assets are in the name of the trust instead of the person who created the trust. When the trust creator passes away, assets in the trust will not be part of the probate estate because the trust, not the individual, “owns” the trust assets. A trust, like a will, can name beneficiaries. Further, a trust offers additional flexibility and allows a person to place conditions and instructions on distributions of their assets. A trust can also sometimes protect assets from creditors. Protecting your assets from creditors can greatly increase what you are able to leave to your loved ones.
In addition to trust property, non-probate assets generally include proceeds from life insurance policies, jointly owned property, retirement plan proceeds, and property that is payable “on death”. Theses assets are not controlled by a will. Upon the owner’s death, these assets automatically transfer to the intended beneficiary or joint owner.
Probate is necessary for those with no plan in place or only a will. A more enhanced plan, like a trust, can limit your probate estate or eliminate the need for probate altogether. In the long run, a more enhanced plan is often cheaper than probate, can protect more of your assets, and can prevent additional stress during a difficult time.
