06 Mar Avoiding Probate
What is Probate?
Probate is the process whereby the court supervises the transferring of a decedent’s property to his or her beneficiaries or heirs. The probate process begins when an attorney or other personal representative files a petition with the court to admit a decedent’s will to probate. After the petition is filed, the court appoints an executor to oversee the estate. The designation as executor provides this person with the power to oversee the estate’s affairs.
A simple way to understand probate involves viewing the court as an objective third party who acts as a supervisor over estate distribution. The court’s job involves making certain the process, disposing of the decedent’s estate, is done according to the decedent’s wishes. Further, the court attempts to make sure that this process is fair and carried out according to the laws.
To those involved, probate can offer an open and orderly process for handling estate matters. In some cases, such as, if the decedent dies intestate (without a will) a petition to open probate may be required. Particularly, if there are complicated affairs such as numerous assets and contested claims to the estate from beneficiaries or creditors. In other cases in which the decedent dies testate (with a will), probate may be needed as a method of making certain a valid claims are paid accordingly and any disputes between heirs over estate assets can be handled in an orderly manner.However, probate is not a requirement for transferring property after death; in fact, many people’s final affairs are administered without court involvement. The question of whether to use the probate process (or not) often considers the reasons why avoiding probate may be an attractive option.
Why Avoid Probate?
The most common reasons for avoiding probate relates to time and expense. An estate administered by a probate court will take longer due to the legal formalities of the process. This delay is because wrapping up the estate will largely be on the court’s schedule as court dates must be set, and rulings by a judge must be made to further the case along. The second reason to avoid probate rests in the fact that probate is an expensive process often involving court fees and legal fees. These expenses are paid from the estate and will reduce the value of the estate left over for heirs. With this in mind, there is a strong incentive to avoid probate if possible.
Avoiding Probate Court
Whether an estate is administered through probate is mainly determined by the estate plan established while the decedent was still alive. An estate can be structured so as to avoid probate. The following provides a number of estate planning strategies that can prevent an estate from entering probate.
• Living Trusts
A living trust establishes a way for assets to be held for the benefit of others by a trustee. Typically, the owner of the property is designated as the trustee with instructions that upon death a successor trustee will be appointed and the assets will transfer from the trust to the designated beneficiary. Commonly living trusts can contain real estate, bank accounts, vehicles, or any other valuable asset. The trust is governed by a trust document that establish the rules for handling the trust and who will administer the trust upon the owner’s death otherwise known as successor trustee. In effect, the need for probate is eliminated because the rules for transferring property are predetermined and triggered by the death of the owner/trustee.
• Joint Ownership of Property
Joint owners of property do not require probate to administer the distribution of jointly owned property upon the death of a co-owner. Joint ownership of property includes the “right of survivorship,” whereby the surviving owner of the property is granted full ownership upon the death of a co-owner. Since the transfer of ownership is triggered automatically through the right of survivorship, there is no need for probate court.
• Payable-On-Death Designation Bank Accounts
In some jurisdictions, bank accounts or certificates of deposit can be designated as “payable-on-death.” With a payable on death designation, the owner of the account retains full control while living, however upon their death the account automatically transfers to the payee. The payee will then be the entitled to withdraw the funds from the account without the need for probate proceedings.
• Transfer-On-death Clauses
Similar to the payable-on-death designation applies to property assets rather than bank accounts. In some jurisdictions, assets such as stocks and bonds, vehicles, and real estate can be designated as transfer-on-death. Like payable-on-death bank accounts, probate court proceedings are not required to carry out the transfer.
• Small Estate Designation
A number of jurisdictions offer a way to for “small estates to bypass probate court. Small estates are defined by a maximum threshold dollar amount to qualify for the small estate procedure. This threshold will vary by jurisdiction and may require different methods of calculating the value. An heir or representative provides a small estate affidavit outlining the value of the estate. This document serves as proof for qualifying for the designation. If the designation applies, the estate may bypass standard probate procedures and be handled out of court or through streamlined court procedures.
The decision to avoid probate depends on a number of circumstances including the characteristics of the estate and the jurisdiction. A probate attorney can provide an evaluation as to whether probate is appropriate for a particular estate in light of the applicable law and financial considerations.