Is Probate a Necessary Process for Passing Assets to Heirs and Beneficiaries?
By Don Drake, Connelly Law Offices, Ltd.
"When someone hears the term probate, the first thing that comes to mind is the expense and the complexity of dealing with the court," states professional fiduciary and certified elder law Attorney RJ Connelly III. "To make it basic, probate is a standard legal process that formalizes how some of a decedent's assets will be passed down to their heirs or beneficiaries. Not everyone needs probate since it is based on the type of property and assets a person has and the probate laws of the state an individual lives in."
Many people base their knowledge of probate on some of the infamous court battles of the rich and famous. "The estates of celebrities like Anna Nicole Smith, Michael Jackson, Jerry Garcia, and Prince have been embroiled in feuds between family members because they lacked an estate plan or a will. And these individuals had many legal and financial contacts and estates worth millions yet ended up in multiple court battles and on the front pages of newspapers worldwide," stated Attorney Connelly. "Every year, millions of dollars are spent on attorney and court fees associated with probate proceedings upon the death of a loved one. Avoiding probate in estate planning can allow the decedent's property to be distributed to the designated person at a designated time without substantial costs."
Probate and Wills
Probate is the process of proving the will is, in fact, the last will, and there are no challenges to it, and of passing on judicially any claims against the estate under court supervision. Probate usually occurs in the appropriate court in the state and county where the deceased permanently resided at the time of his or her death.
"In cases where a valid will does not exist, this is called intestacy," said Attorney RJ Connelly III. "In such cases, the title to the property will pass to the heirs per the state's intestacy laws, normally giving half to the surviving spouse and the remainder divided equally among the children. If a person dies with a will, a court must allow others to contest the document. Creditors are also allowed to be heard, the validity of the will can be scrutinized, and even the mental capacity of the deceased at the time of drafting the document can be questioned."
The rules of intestacy vary significantly by state and can be extraordinarily complex. For example, some states treat domestic partners differently or lack well-defined statutes explaining such partnerships' rights, especially for same-sex couples. Domestic partners enjoy the same protection as spouses in other states, but that's not true everywhere.
"In most states, there are rules that keep individuals who have mistreated the deceased from receiving any inheritance," noted Attorney RJ Connelly III. "An obvious example is anyone responsible for the death of a deceased person, such as a family member who neglected a sick adult in their care."
Probate proceedings take time and money; unfortunately, the heirs lose out when a protracted battle exists. Probate can take up to a year or even more, and the assets are typically "frozen" until the court decides on the distribution of the property. In cases where it is contested, or family acrimony is in play, probate can last for years and cost heirs a significant percentage of the estate's total value. And even more distressing for some, the family conflict can play out for all to see as probate is a public process.
"It's not pleasant for a family when a court fight ensues, in many cases over emotional disagreements," Attorney RJ Connelly III pointed out. "I'm sure the deceased did not want his or her legacy to play out in the local newspapers. In most cases, a comprehensive estate plan can help avoid this problem."
Is Probate a Necessity
"Revocable Living Trusts can avoid probate proceedings and allow assets to be passed to beneficiaries faster," said Attorney RJ Connelly III. "The trust's assets bypass the probate court and usually take precedence over any property designated in the will. A clear determining factor of the need for probate is the value of the decedent's property."
If the value is less than $100,000, the assets qualify for a simplified procedure in most states. For example, to act without court intervention for settlement in a simplified procedure, the following must be true:
The estate has adequate assets to cover all debts and taxes.
If a will exists, the executor needs to petition the court.
If a will does not exist, the surviving spouse petitions the court if the estate has community property, and the decedent has no children or grandchildren from a previous relationship.
The court finds that bypassing probate would be in the best interest of the creditors and beneficiaries, and the executor is not a creditor.
This small estate affidavit procedure is helpful if the probate asset valuations, excluding any property interest to surviving spouses or domestic partner's community, minus liens, and encumbrances, is no more than $100,000. In the absence of a will, the probate process must ensue, and the distribution of whatever assets may exist does so under state intestacy law. There are ways to avoid probate, even with a sizeable estate, through careful planning. Probate avoidance will not only reduce legal fees overall, but it can also mean avoiding estate tax, which can be significant in a wealthy estate.
What Assets Can Bypass Probate
"Aside from the Revocable Living Trust, life insurance policies pass outside of probate," said Attorney RJ Connelly III. "Payable Upon Death (POD) accounts can pass directly to a beneficiary without probate for checking and savings accounts, money markets, certificates of deposit, and United States Savings Bonds, but there is a caveat, each account does require a complete beneficiary registration. Retirement accounts such as a 401(k) or IRA also pass to an adequately designated beneficiary outside the probate court."
"Most pensions that are inheritable are under a form of trust and, as such, will also maintain their valuation outside of the probate process. In military benefits, a death gratuity, a lump sum payment to survivors made by the US Department of Defense, is $100,000 and is tax-exempt. If there is real estate as joint tenant ownership, the property will pass outside of probate as well."
If a revocable living trust is not established, using named beneficiaries in POD accounts and retirement accounts or the probate process, there is almost no way to own inheritable property legally. A quasi-exception exists in Florida, where a family may own property in a decedent's name if they do not sell it and continue paying taxes. Each state has differentiation in inheritance laws, so it is essential to retain an elder law attorney for the state where you live.
"Most families will contact the probate court whether or not the bulk of the estate will pass through the probate process," expressed Attorney RJ Connelly III. "The executor of the will is required to file a request for probate in the county where the decedent was living and provide a death certificate. The probate court will then approve the executor named or designates one and offers letters for testamentary which legally permits the findings and processing of the decedent's financial and other property accounts."
To get specific answers to your estate questions regarding passing your probate and non-probate assets to your heirs, contact Connelly Law or speak with an estate planning attorney.