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What is Probate?
Probate is the formal legal process that gives recognition to a will and appoints the executor or personal representative who will administer the estate and distribute assets to the intended beneficiaries. The laws of each state vary, so it is a good idea to consult an attorney to determine whether a probate proceeding is necessary, whether the fiduciary must be bonded (a requirement that is often waived in the will) and what reports must be prepared. Most probate proceedings are neither expensive nor prolonged, which is contrary to the claims of many vendors selling living trust and other products.
The basic job of administration and accounting for assets must be done whether the estate is handled by an executor in probate or whether probate is avoided because all assets were transferred to a living trust during the lifetime or jointly owned. Many states have simplified or streamlined their probate processes over the years. In such states, there is now less reason to use probate avoidance techniques unless there are other valid reasons to continue to minimize probate. In planning your estate, more important than minimizing probate is minimizing the real issues that can make probate difficult, such as lawsuits by heirs.
Probate is the legal process of settling a deceased’s affairs in an organized fashion. Although the probate process has a bad reputation, it is the reality for a significant number of families, and it’s a process that can function well for some small estates. Additionally, probate is a matter of public record, which means personal family and financial information may become exposed to the public. For larger estates, there may be considerable costs, including court, attorney, and executor fees, and taxes all of which get deducted from the value of the estate. Since these matters are complex and unique to each estate, it is crucial that you seek good legal counsel and advice to do what is best for you, your family and your hiers.
Probate can be an overwhelming, confusing, stress-inducing, and very prolonged process for people, especially because it usually occurs after the death of a loved one. Having experienced legal counsel throughout this process can help the process be more efficient and less time-consuming.
While your estate is in probate, your assets may be frozen for months, making it difficult for your family to pay for living expenses. If you are married and have children, you want to ensure that your surviving family has immediate access to cash to pay for living expenses while your estate is being settled.
With proper planning, your assets can pass on to your loved ones without undergoing probate, in a manner that is quick, inexpensive, and discreet.
Navigating the Probate Process
In a probate hearing, the court will determine if an instrument (some document) offered as a will is proper and valid. If this will is found to be valid by the court, the court will then supervise the distribution of assets in the probate estate in accordance with the terms of the will. Oftentimes, the deceased already will have named an executor in the will to administer the estate during the probate proceeding, and if not the court may assign someone or a professional fiduciary to oversee the execution of the will. A professional fiduciary has two primary roles within probate law. The first is as someone whose job is to manage the estate of a deceased person. The second role is as someone who manages the care of a living person who cannot manage their own care.
If a person dies intestate (i.e., without a will) the decedent’s estate must still go through the probate process. The probate court may appoint an independent professional or administrator to act as an executor which are commonly referred to as a personal representative to manage the estate and divide the decedent’s property in accordance with the laws of intestacy. Property passing through probate may be subject to estate taxes if it is large enough.
Property owned by the decedent and another person as joint tenants with the right of survivorship or trust property passes automatically to a beneficiary without the need for a probate proceeding. Property acquired during a marriage in community property states like California may also pass to the decedent’s spouse free of probate. Furthermore, property that passes to another person pursuant to a contract does not go through probate.
For instance, a person named as the beneficiary of an insurance policy, a retirement account, or a payable on death account will receive the decedent’s property outside the probate process.
To initiate the probate process, a petition for probate must be filed in court in the county of the decedent’s residence or in some instances, where the decedent owned real property. The petitioner must mail a copy of the petition and notice of the hearing to all persons entitled to notice as determined by the will and the Probate Code. The person appointed by the court to serve as the personal representative must marshal all assets of the decedent’s estate and provide notice of the probate proceeding to any known creditors.
The personal representative must pay all taxes and outstanding debts connected to the decedent’s estate subject to various limitations under the Probate Code and Code of Civil Procedure. Finally, the personal representative may distribute the estate according to the terms of a valid will or the state intestacy laws after filing the appropriate petition in court.
Should You Try and Avoid Probate?
The living trust is a vehicle that allows you to “avoid probate” upon your death. Probate is the court-supervised process of administering your estate and transferring your property at death pursuant to the terms of your will. Probate is rarely the calamity naysayers claim, but in some cases, it can be. In addition, many types of property routinely pass outside of the probate process, even without the cost of establishing a living trust. As mentioned previously, such property includes life insurance or retirement plan proceeds, which pass to a named beneficiary by designation rather than pursuant to your will, and real estate or bank or brokerage accounts held in joint names with the right of survivorship.
While it is true that the property passing under the terms of a living trust upon your death will “avoid probate,” it should be noted that there may or may not be actual value in that result. Probate laws are different in every state. In some states, there are statutorily mandated court or attorney fees while in others those fees may be minimal. Many states have expedited or simplified court proceedings that are efficient and inexpensive for small or simple estates. A properly drafted will in many states can eliminate some of the steps otherwise required in the probate proceedings. In addition, much of the delay and red tape customarily associated with probate is a result of tax laws and tax filing requirements, which cannot be eliminated through a living trust and the avoidance of probate. Finally, a living trust can almost never totally avoid probate, and a simple will is needed to “pour over” to the trust any property that has not been transferred to the trust during your lifetime.
Property that passes at death through a revocable living trust must be transferred to the trust, administered by a trustee who may or may not charge fees, and then transferred out of the trust to the beneficiaries. There may be other costs, such as real estate transfer taxes or fees, depending upon the jurisdiction. The costs associated with these steps and the costs associated with tax filings are often ignored by living trust marketers. A comparison of the costs of probate and those of a living trust should be made on a case-by-case basis.
Living trusts, in fact, have great value as part of estate planning, but not necessarily to avoid probate. A living trust, if properly prepared and administered, can be a very effective tool to manage assets in the event of illness, disability, or the effects of aging. In light of the aging population, the use of living trusts to minimize the risk of elder financial abuse and address similar issues should be an important consideration in an estate plan. Thus, estate planning must be done precisely to avoid probate proceedings.
Again, these proceedings are quite complex and need for guidance and representation is paramount to save time, money and potential liability. Each situation is very different and only an experienced and qualified attorney can help people decide what is best and how to navigate these complex proceedings.
Contact Us for a Case Evaluation
If you feel that you have questions about probate, trusts, estate planning, your responsibilities as a trustee, or have questions if you’re a beneficiary of a trust, or are concerned that an estate is facing probate, it’s important to take steps to protect your rights. To schedule a free case evaluation, contact us online or via phone at (650)-649-5447