The probate process gets a bad reputation, but it’s the reality many families will face, and it’s a process that can function well for some small estates.
Here’s what heirs need to know as they navigate the probate process after the loss of a loved one and what those currently making their own estate plans should know about avoiding probate.
What Is Probate?
Probate is the court-supervised proceeding in which the assets of a person who recently died, known as the decedent, are retitled in the name of his or her heirs. This legal proceeding also involves validating the decedent’s last will, distributing assets to heirs and ensuring debts of the estate are paid.
“Probate is how assets formally pass from one person who passed away to their heirs or beneficiaries. Probate can be long and complex or pretty efficient,” says Julia L. Cronin, attorney at Evergreen Legacy Planning, based in Colorado. “Each state has its own probate code, so Colorado has a small estate probate process for estates that are under about $70,000 and have no real property. There’s also an informal probate process if you don’t expect an estate to be contested and then there’s formal probate, which tends to be if there’s a large estate or complex assets.”
The administration of the estate typically involves the executor or personal representative, beneficiaries, creditors and a judge.
When Probate Is Necessary
The probate process is necessary to manage assets and property that is not transferred by contract law, state titling law or trust law. This means any assets or property awarded in a last will or assets owned by an individual who dies without a will may necessitate probate.
What Has to Go Through Probate Court
Some property must pass through the probate process before it can be retitled to heirs.
Property that passes through probate includes assets and property awarded to heirs through a will, such as household goods and cars, as well as any property owned at death but not awarded in the will and not otherwise transferred.
“If an individual dies intestate, the disposition of their probate property will be controlled by the laws of intestacy of the state where they are a resident at their death,” Daniel R. Bernard, a partner at Twomey, Latham, Shea, Kelley, Dubin & Quartararo LLP in Riverhead, New York, wrote in an email. “Probate property is all property that was held individually and that does not have a beneficiary designation.”
What Does Not Have to Go Through Probate Court
Property that passes by state contract law, state property title law and state trust law does not go through the probate process. This might include:
— Retirement funds with named beneficiaries.
— Life insurance policies with named beneficiaries.
— Annuities with named beneficiaries.
— Pay-on-death accounts.
— Transfer-on-death accounts.
— Property held as joint tenancy with rights of survivorship.
— Property held as tenancy by the entirety.
— All trust property.
[Read: Setting Up a Trust Fund.]
How Does Probate Work?
Each state has its own probate process, but generally the first step in probate is to produce a will. Jennifer D. Taddeo, estate planning attorney and partner at Conn Kavanaugh in Boston, also suggests contacting family members and heirs at the beginning of the process.
“Get a headcount and see if everyone’s on board with the state of the will and whether they’re going to consent to have it probated or not. If you know everyone’s on board, there’s not going to be any objection, get the attorney to prepare the probate documents, have the waivers sent to the distributees, have them sign those waivers,” Taddeo says. “Have the distributees sign and notarize the consent as soon as possible, get the will with the probate documents filed.”
Proceedings may take place in court or virtually.
“In the early days of COVID, it was slowing down the probate process,” says Michael D. Whitty, estate planning attorney and partner at Freeborn. “By now, things have gotten back into a good rhythm and timing so that, if anything, some things are actually faster. Most of the probate hearings I have done in the last couple of years have been by Zoom now. For a routine hearings, we’re typically just doing that by Zoom. It’s more convenient for the court, for the attorneys, and it’s more cost-effective for clients.”
After a will is deemed valid, probate involves gathering assets, alerting creditors and distributing the remaining estate.
What to Bring to Your First Probate Hearing
The petitioner, who is also generally the executor of the estate, should be prepared to file certain documentation with the court. This might include:
— Last will.
— Certified copy of the death certificate.
— List of names and addresses of the decedent’s heirs.
— List of known creditors.
[Read: 10 Steps to Writing a Will.]
How Long Does Probate Take?
The probate process can be extensive and span multiple years.
“It’s set up in a way to minimize the risk of making mistakes,” Whitty says, “however the cost is that it is time-consuming, there are a lot of procedures involved and that can be frustrating for people who are the deserving and rightful beneficiaries who are going to be receiving property because it means they don’t get it for months, sometimes years — usually half a year to a year.”
How Much Does Probate Cost?
Probate can be extremely expensive. The average probate process costs 5% to 10% of an estate in legal fees and administrative costs, with some estates losing 20%.
Attorney fees vary based on the size of the estate and location of the probate. In California, fees are set by statute and include the following maximum schedule:
— 4% of the first $100,000 of the estate.
— 3% of the next $100,000.
— 2% of the next $800,000.
— 1% of the next $9,000,000.
— 0.5% of the next $15,000.
Other fees include executor compensation, in which the executor of the will can collect fees for completing the required work, court fees for filing and other paperwork, and a probate bond, which may be refunded after the proceedings are complete.
“Litigation is the most common reason for increasing costs: Fights between beneficiaries or persons attempting to obtain ownership of estate property, or the estate representative trying to marshal assets held by others,” Solarz says. “If the decedent was a party to litigation at death and the estate becomes the successor in interest, the ongoing litigation can be expensive.”
Aside from litigation, probate costs can also increase significantly when issues related to the preparation and filing of federal estate tax return and subsequent audit, audit of income tax returns of the estate or the decedent, heirship claims and poorly drafted wills arise, Solarz says.
How to Avoid Probate
Probate can be expensive and time-consuming, and the probate process is public. For these reasons, many individuals opt to create estate plans that aim to allow assets to pass outside of the probate process, often by creating a revocable living trust.
“There are many, many different trusts used for many things, but in revocable living trust, also sometimes known as a will substitute, is essentially a set of instructions that the person who’s making the trust gives the person who’s administering the trust about how they want certain property to be administered,” Cronin says. This type of trust is often used to allow property to pass outside of probate. “In general, you create the trust, you have this set of instructions, and then you have to fund the trust which means you transfer the title of certain assets to the trust.”
In addition to creating and funding trusts, individuals can avoid probate by titling property with a survivorship feature and ensuring beneficiaries on accounts such as IRAs are named and up to date.
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Update 08/30/22: This story was published at an earlier date and has been updated with new information.