Estate Planning is an important part of everyone’s life. It ensures all your life’s earnings are safe and make your loved ones stay self-sufficient even after you’re gone.
Most importantly, a good Estate Plan can keep your assets and your loved ones away from Probate.
What you’ll learn from this article:
What is Probate?
Probate is a legal process where a court oversees the distribution of a deceased person’s assets. However, the process may prove to be extremely expensive, time-consuming and emotionally draining for your loved ones.
This court has the legal authority to decide all matters related to wills and estates. This includes:
- Proving the validity of the deceased person’s will
- identifying and cataloging deceased person’s property
- Assessing the property
- Paying debts and taxes, and
- Distributing the remaining property
How Does Probate Work
Typically, the probate process starts with reporting the death of the testator (person who makes the estate plan) and ends with distributing your assets to your beneficiaries. The process also includes finding, securing, and managing your assets. Depending on the contents of your will and the amount of debt, your executor may have to decide whether or not to sell your assets.
The process can take weeks or even years depending on the size and complexity of your estate. Most states have different procedures, and usually include at least one way to avoid probate for the benefit of your loved ones and family.
In most states, immediate family members may ask the court to release short-term support funds while the process carries on. Usually, this is how the process looks:
- Filing Death of Testator: Someone, usually your Executor, informs the court of your death and submits a copy of the death certificate to start the probate process.
- Validating the Will: Next, your Will needs to be authenticated by the court to ensure its validity. This is done by checking if it was signed and dated per the law.
- Selecting Someone to Conduct the Process: When a Will is present, the judge formally appoints the person you named as the Executor to your estate. If there is no Will, the court appoints an administrator for this role – usually, a close relative. The executor/administrator then oversees the process to settle your estate.
- Determine Value of Assets/Property: An assessment is conducted to determine the value of your estate, which accounts for everything you own at the time of your passing. This includes collecting and cataloging all real estate, personal, and household items. The total combined value is then used to estimate the value of your estate.
- Clear All Fees and Debts of the Deceased: Typically, funeral expenses are paid from your estate. Once this is paid, any medical expenses, tax payments, and other unpaid debts you may owe at the time of your death are funded by your estate.
- Distribute Remaining Assets: After all debts have been cleared, any remaining assets will be transferred to the appropriate Beneficiaries. The Executor will forward deeds and titles into the correct Beneficiary’s name based on the instructions in your Will or from the court.
Probate with Will
When a testator dies, the executor appointed by them is responsible for initiating the probate process. If no executor has been appointed, the court assigns an administrator.
The court officially appoints the executor named in the will, which gives the executor the legal power to act on behalf of the deceased. The executor has a list of duties to then carry out and manage the estate, consult with professionals, talk to beneficiaries and heirs, etc. The court oversees this process.
If there is no Will, this process gets more complicated.
Probate without Will
When a person dies without a Will or with an invalid Will, he is said to have died intestate. The court distributes the decedent’s assets according to state laws for an intestate estate. Generally, the process begins with the appointment of an administrator to manage the deceased’s estate.
The administrator functions as an executor and needs to locate legal heirs. The court will then assess how to distribute the assets among them. Most state laws divide the estate between the surviving spouse and children of the deceased.
If an individual has no Will and no heirs, their assets go to the state. This is known as escheatment.
What goes through probate
If you do not have a Will, everything you own goes through probate. The following always go through the process, regardless of what your Estate Plan states:
- Inheritance where Beneficiary predeceases testator: If a beneficiary you appoint passes away before you do and your Will is not updated, the court decides how to settle this portion of your estate.
- Non-titled property: Any property you own that doesn’t have paperwork, like clothing, furniture, and other general items needs to go through probate.
- Sole ownership property: Ownership of property titled solely in your name needs to be determined in courts. In some states, you can avoid this by adding Payable-on-Death or Transfer-on-Death to the title or deed.
How to Avoid Probate
Probate can take a long time, even years, and prove to be expensive for your loved ones. The costs vary from state to state and usually include executor fees, administrative fees, and legal fees. Moreover, these processes are public and can be troublesome for your loved ones if they value their privacy, especially during difficult times.
To avoid this, you can take measures that limit your assets to mostly non-probate ones, like payable-on-death accounts, jointly owned property.
Here are more strategies to help your loved ones avoid probate:
- Establish a Living Trust: Trusts are managed and distributed separately from courts. When you die, the named Trustee manages all the assets inside of it, as per your guidance.
- Create Payable-on-Death accounts: Change your retirement accounts and bank accounts to payable-on-death accounts. This way, the proceedings from these accounts go directly to your beneficiaries.
- Use Transfer-on-Death: Similar to payable-on-death accounts, you can change security registrations, vehicles registrations (check with your state’s motor vehicle department website), and real estate to transfer-on-death. This lets your beneficiaries directly receive the assets after your death.
- Probate your Will when alive: Pre-death probate can help you reduce family disputes, legalize your wishes before your death and keep your loved ones out of long court battles after you pass away. However, you can still change your Will after going through pre-death probate, consequently wasting time and resources. This facility is available only in Alaska, Arkansas, North Dakota, and Ohio.
- Gift your assets: Gifting property while you’re alive helps your loved ones avoid courts and lowers costs by reducing the monetary value of your probate assets. Moreover, gifts up to $1 million aren’t subject to the federal gift tax.
- Jointly own property: Titling property jointly can transfer the assets from one person to another directly. You can hold assets as:
- Community property with the right of survivorship: You can co-own property with your legal partner via. community property with the right of survivorship. This way, if a partner dies, the surviving one automatically owns the asset. However, community property is available only in these nine states in the US:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
- Joint tenancy with right of survivorship: Property owned under joint tenancy automatically transfers the asset to the surviving owner when another passes away.
- Tenancy by the entirety: Similar to joint tenancy, tenancy by entirety avoids probate by automatically transferring assets after the death of one partner. However, this can be used only by married couples and same-sex couples registered with the state.
- Community property with the right of survivorship: You can co-own property with your legal partner via. community property with the right of survivorship. This way, if a partner dies, the surviving one automatically owns the asset. However, community property is available only in these nine states in the US:
- Create a Digital Estate Plan: Assets are now digital too. More people are now realizing the monetary and sentimental value of digital assets and the need for loved ones to have access to them. Creating a digital estate plan can help your loved ones access your digital data without spending long and expensive hours in courts.
Help your loved ones save time, money, and peace of mind by creating a digital estate plan easily today!
