Estate Planning Basics: The Probate Process

By on December 15, 2018
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Losing a loved one is a difficult, emotional experience that can be complicated by decisions around what should be done with the deceased’s assets. It’s not uncommon for family members to disagree and argue over money and property. The probate process brings order to the way an estate is administered. All assets in an estate go through probate before anyone gets anything, unless those assets are considered non-probate assets, which are discussed later in this article. First, let’s discuss the probate process.

What is Probate?

Probate is the legal process of administering your estate after you die. Your estate goes through probate whether or not you have a will. If you have a will, your assets are distributed according to your wishes…for the most part, and we’ll explain more about that later. If you die without a will, your estate is probated according to state law and most likely your assets will not be distributed in the way you would have wanted.

Tip: If you are over 18 and own anything, or have children, it’s a good idea to consult with an attorney and draft a will. It will make the probate process easier on your executor and ensure your loved ones receive their gifts from you.

The Probate Process

Most people draft wills because they have specific intentions for the things they own. However, the distribution of assets to beneficiaries is the last step in the probate process. There is an order in which a will is probated, and therefore the process is court-supervised. Even though probate court is a state court and laws vary from state to state, the process is essentially the same:

  1. Swearing in of your executor or representative
  2. Notifying creditors, beneficiaries, and the public of your death
  3. Taking an inventorying of your assets
  4. Paying bills and taxes, and distributing assets to your beneficiaries

Swearing In the Executor/Representative

The formal probate process begins with a hearing and the swearing in of the executor named in your will. The executor is typically someone you trust to handle your affairs after you die, such as your spouse, adult child, friend, or in some cases, a financial or legal adviser. If you die intestate (without a will), or the person you named to be your executor cannot fulfill their duties, the court will appoint a representative for you. A court-appointed representative is usually a neutral public administrator who oversees the distribution of your assets. At this point, any family member or friend can ask the court to serve as your representative in lieu of a court-appointed rep.

Your executor or chosen representative is required to take an oath of office and is then issued Letters Testamentary – legal documents giving official authority to administer your estate. Your representative must then file a Petition for Probate of Will and an Appointment of Personal Representative to initiate the probate process. If you die testate (with a will), the court reviews your will for validity and authenticity and then admits it to probate.

Notifying Creditors, Beneficiaries, and the Public of Your Death

Once the court determines your will is valid, the executor is responsible for publishing an obituary in the local paper. This serves as official notice of your death to anyone who may have an interest in your estate, such as creditors or family members. To request assets, interested parties must file a claim against your estate within the specified time period.

Taking Inventory & Collecting Assets

One of the most important tasks the executor performs is taking inventory and collecting all of your assets – real and personal property – that are being probated. Real property refers to buildings and land. Personal property refers to any property that is not real estate, such as bank accounts, retirement accounts, and personal possessions. All assets and their values must be filed with the court. If the value of property is unknown, it must be appraised. This is done to ensure there is enough money to settle debts and distribute to your beneficiaries, and to ensure all property is available for distribution at the end of the probate process.

Your executor is also responsible for collecting any monies owed to you from paychecks, life insurance policies, and retirement accounts, etc. Monies owed should be made payable to the estate. The executor should consider opening a checking account in the name of the estate to make it easier when settling financial obligations and distributing money to beneficiaries.

If your estate cannot meet your financial obligations or distributions to your beneficiaries, it is subject to abatement statutes. This means one or more of your beneficiaries will receive less than you intended or nothing at all. If property is missing, it is subject to ademption statutes, which determine if there is a suitable replacement or monetary equivalent available.

Settling Debts & Distributing Assets to Beneficiaries

At this point, the executor has collected, inventoried, and has ensured there is value attached to all real and personal property. Before assets are distributed to your beneficiaries, creditors who have filed claims within the specified time period are paid, and families are given allowances to pay financial obligations the estate cannot meet.

Assets are distributed in the following order:

  • Estate administration fees
  • Funeral expenses
  • Debt and taxes
  • All remaining claims

After all assets have been distributed, a final settlement is required by the court. Once the judge has approved the settlement, the executor’s job is finished and the estate is dissolved. At this point, no other parties may come forward to claim assets.

Full Probate vs. Informal Probate

Not all estates need to go through the full probate process described above. There are certain conditions where a small estate procedure will suffice.

Your estate may be granted relief from administration if you have no assets, or if your assets are exempt from probate for some reason, i.e. you created a trust to own your assets.

A small estate procedure may suffice if your assets are valued under a certain amount of money, usually between $25,000 and $75,000, and contain no real estate. This is referred to as informal probate. The criteria for small estate procedures vary by state. While informal probate does not require a hearing like formal probate, most states may still require an affidavit to be filed with the court, and a representative appointed to collect, inventory, and distribute assets of the estate.

Your estate will go through the formal, supervised probate process as described above if your assets are valued over a specified amount, contain real estate, or if there are any disputes or complications.

Probate vs. Non-Probate Property

Like small estates, not all property needs to go through the probate process either. Typically, only property held individually in your name needs to be probated. Types of property that avoid probate include:

  • Investment accounts or accounts with Transfer on Death (TOD) designations that name beneficiaries
  • Trusts, and assets named in trusts that would normally be subject to probate
  • Insurance policies
  • Assets you own jointly with another person that also have right of survivorship

Keep in mind that If you have assets with beneficiary designations, it’s important to keep them up-to-date as life changes occur; beneficiary designations trump whatever may be stated in your will.

While the probate process isn’t as simple as dividing up your money and property and distributing it to your loved ones, it doesn’t have to be as complicated as people make it out to be. Of course complications can arise that can increase the cost and lengthiness of the process, but, in general, probate is designed to help your family tie up loose ends as quickly as possible. You can make the process easier by engaging in estate planning, utilizing the tools (Wills, Trusts, etc.) that best fit your situation, and discussing your plans with your loved ones before your death.

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