Probate 101 Legal Guide
You should understand some things about probate before you make any final estate planning decisions. This is a legal process that will enter the picture if you utilize a will to state your final wishes regarding postmortem asset transfers.
What Happens During Probate?If you create a will, you name an executor to act as the administrator after your passing. The executor would be required to admit the will to probate, and the court would provide supervision during the administration process.
Creditors would be notified, and they are given time to come forward. Meanwhile, the executor will identify, inventory, and secure the assets that will eventually be transferred to the heirs.
They will establish an estate bank account, and all valid final debts will be paid, including taxes. If anyone wants to contest the validity of the will, they can come forward while the estate is being probated by the court.
When all of the tasks have been completed to the court’s satisfaction, the estate will be closed, and the assets will be distributed to the beneficiaries.
We should point out the fact that the probate court would provide supervision if you die without an estate planning documents at all.
Elders and other adults sometimes become unable to handle their affairs due to cognitive impairment or serious physical ailments. This court can be petitioned to appoint a conservator to act on behalf of an incapacitated adult.
Probate DrawbacksAs you can see, probate serves a purpose, but it is somewhat problematic to the rightful inheritors. One of the drawbacks is the cost factor. The executor is entitled to payment, and they may engage a probate lawyer and a tax accountant.
When the assets are being prepared for distribution, appraisals and liquidation of property may be necessary. There are also incidental expenses, so all the expenditures reduce the value of the estate before it is transferred to the heirs.
Most people like to conduct their financial affairs confidentially, and the way that the inheritances will be distributed, and the names and contact information of those inheriting would fall under the category of sensitive information. Probate records are available to the general public, so anyone that is interested can get all the details.
You probably want your loved ones to receive their inheritances in a timely manner after you pass away. This will not happen if you use a will to direct asset transfers, because probate will typically take nine months at minimum, and complicated cases can take considerably longer.
Assets That Pass Outside of ProbateThere are some types of asset transfers that are not subject to probate. You can add a beneficiary when you open an account at a bank or a brokerage. This is called a payable on death account, and probate would not be a factor when the account is transferred to a beneficiary. It is important to keep your beneficiary information up to date to assure that this asset is transferred outside of probate.
If you own property, it is possible to change the ownership documents to create a joint tenancy. You would make someone a co-owner of the property, and joint tenancy comes with right of survivorship.
This means that the surviving joint tenant would inherit the interest in the property that was owned by a deceased joint tenant. The probate court would not be involved in this transfer.
However, joint tenancy is a race to finish and if your joint tenant predeceases you or passes at the same time as you, the asset will have to be probated.
When an individual retirement account is inherited by a beneficiary, probate is not a factor, and this also applies to the transfer of life insurance proceeds to a beneficiary.
Proactive Probate AvoidanceYou can facilitate asset transfers outside of probate if you use a revocable living trust as the centerpiece of your estate plan. There would be no loss of control of the assets, because you would act as the trustee while you are alive, and you would retain the right revocation.
After your passing, the successor trustee that you name in the document would distribute the assets to the beneficiaries, and probate would not be necessary. This is one benefit, but there are a number of others that are quite significant.