Probate: What’s The Big Deal?
For many, probate is a dirty word. It gets a bad rap: “it’s expensive,” “it causes delay in settling an estate,” “it takes forever,” “you have to go to court.” Well, some of that is true. But sometimes we choose to probate an estate because it makes the most sense for a particular family’s situation or because the options to avoid probate are just not workable or acceptable to the client making an estate plan. Contrary to popular myth, probate may be part of a properly prepared estate plan. But it can also be the result of no planning - and often these are the stories you hear about. Planning is the key to your peace of mind. Planning results in your wishes being followed.
What is Probate?
Probate is the process of administering the estate of someone who has died (the “decedent”). Probate is necessary when the deceased person owned real estate in their own name (either individually or as a tenant in common with someone else) or other types of property valued at $75,000 or more (“probate property”). If the decedent had a Will, the Will directs how the probate property will be distributed. If the decedent did not have a Will, state law determines how the probate property will be distributed. Those laws are called the Laws of Intestate Succession and can be found here.
A probate proceeding is filed with the Court, noticed in the newspaper, and results in “Letters” being issued to a person to administer the estate (the “personal representative”). The personal representative collects the probate property, liquidates it as necessary to pay final expenses, pays the bills from the available probate assets, and distributes remaining assets in accordance with the Will or state law. The probate proceeding must remain open at least four months, which is the time allowed for creditors to come forward and make claims against the estate. Probate limits the time for creditors to come forward to that four month period; without probate, that time limit is one year after death. For estates with debt, probate offers a prompt closing of the estate, cutting off creditors who do not timely file a claim in a court and eliminating the worry about unknown creditors that can often haunt a family for a full year after death of a loved one.
Unlike in other states, attorneys cannot charge a percentage of the value of the estate for their fees, like they used to be able to. Typically, lawyers charge a flat fee for a small estate or by the hour. Most lawyers have a paralegal who performs many of the administrative tasks, which tends to keep the legal fees down. Personal representatives are entitled to be paid for their services to the estate; payment is a personal decision for each personal representative.
Contrary to popular knowledge, Wills do not avoid probate. This is a common misperception of Wills. However, Wills do not necessarily cause a probate either. What triggers a probate is the type and/or amount of assets a person has. Period.
Avoiding probate is often a goal of clients. There are many ways to avoid probate. Once your estate planning attorney understands your family situation and your assets, a plan can be put in place to avoid probate. That plan may include a revocable living trust, it may include beneficiary designations on real estate and accounts, it may include joint ownership of assets, or any combination of the above. Be wary of "simple" solutions you can do on your own which can avoid probate but may make matters more complicated for your loved ones left behind. For example, in the wrong situation, naming multiple family members as beneficiaries on real estate or bank accounts can make settlement of the estate complicated or can leave insufficient funds available to pay final expenses (and leave one or more persons “holding the bag” to pay all the bills!), especially where family members do not get along.