Whether or not you have an estate plan in place, you have likely heard the term “probate”. Probate is the legal process by which a deceased individual's assets are distributed under court supervision. This process is necessary to distribute assets that are solely in the name of the deceased person. Probate is governed by state law.
One of the appealing aspects of putting together an estate plan is to avoid probate. One way to avoid the probate process is to ensure that no assets will be titled in the decedent's name, or providing for an automatic transfer of title, at death. Ways to accomplish this include joint tenancy with rights of survivorship, transfer-on-death (TOD) or payable-on-death (POD) beneficiaries, or use of a trust.
Joint ownership is easy to create and transfer property; however, this solution provides its own set of concerns. TOD and POD accounts can be efficient because, upon the account owner's death, they immediately transfer the account, outside of probate, to the named recipient. They are easy (and typically free) to set up. It is important to note; however, that in this case, the account is transferred to the beneficiary outright without any creditor protection. Another popular and efficient way to avoid probate is the use of a trust. If you place your assets in a trust, the trust, not you, owns them although you can control these assets and benefit from them as if they were yours. Accordingly, the assets do not go through probate because only property owned by the decedent goes through this process.
Note: If your estate planning consists of just a will, this document will go through the probate process. However, by using a will, you have the ability to determine who will get your assets - as opposed to letting the court decide for you.
Benefits & Downsides of Probate
While there are numerous estate planning tools that can be used to avoid probate, it is not always a bad thing. A probate court can ensure that your intentions and wishes listed in your will are carried out after your passing. Additionally, the probate process guarantees all presented debts are discharged as well as any outstanding taxes on the estate. This, in turn, results in finality to the affairs of the deceased - and surviving family members. Of note, if the deceased had outstanding debt, the probate process gives creditors only a brief window to file a claim against the estate, which could result in more debt forgiveness if there is a concern about the estate being insolvent.
That being said, there are downsides to the probate process. One such downside is the cost. Due to the filing and inventory fees imposed by the probate courts, this is an additional expense eating away at the estate. Also, the probate process can be very time-consuming. The probate must be open for a minimum period of time (in many states it is four months) to permit creditors to file claims against the estate. For most uncomplicated probate estates, it will take a minimum of one year to administer. Additionally, the lack of privacy can be a concern for some families. The contents of your will, and any other documents that have to be filed with the court, will be a matter of public record. Any disgruntled family member wondering how your estate was divided up, will have the ability to get access to the documents through the probate process. Lastly, the probate process takes control away from the deceased and the family. This is because, if you do not have a will, the probate process puts the disbursement of a deceased's assets in the hands of the court and at the mercy of local intestacy law.
If you have questions about the probate process and intestacy laws in your state, feel free to give us a call and schedule an appointment. No matter if you have a little or a lot, a well-crafted estate plan can help you avoid probate and make sure your loved ones are taken care of when you are gone.