How the Use of Estate Planning and Trusts May Avoid the Probate Process
By Don Drake, Connelly Law Offices, Ltd.
"I often meet people who are unaware that a well-crafted estate plan and specific trusts can help them avoid probate," explained RJ Connelly III, a professional fiduciary and certified elder law attorney. "The probate process can be lengthy and costly, not to mention that it becomes a public record. However, in most cases, probate is necessary, and it's crucial to clearly understand its workings." With this in mind, we asked Attorney Connelly to provide us with a brief overview of the probate process.
Attorney Connelly explained that probate proceedings aim to authenticate the deceased's final will and transfer the estate's assets to the rightful heirs, per the decedent's wishes. The court supervises these proceedings to ensure the estate's debts are settled and the assets are distributed fairly among the heirs.
After a loss, families usually gather to review important estate planning documents such as a will, which should be professionally written. However, if there is no well-organized estate plan, the probate process can become lengthy if family members do not cooperate or cannot be located. Attorney Connelly suggests that in the ideal situation, family members should work together to gather information needed for the court. However, this can be a difficult and emotional process given the circumstances and the emotions involved.
Probate Court Proceedings
According to Attorney Connelly, the petitioner (who is usually the estate executor or personal representative) initiates the process by submitting the deceased's death certificate and last will to the probate court. It's crucial to provide a list of creditors' names, contact information, and the heirs' details. If the estate is small or uncontested by heirs, the probate court process can generally be completed efficiently and rapidly.
Probate can be challenging, especially since the laws surrounding it are specific to each state. Different states have different valuation thresholds that must be met. Attorney Connelly explained that if the estate value is under a certain amount (this is state-specific), and no one disputes the will, a less formal probate hearing may be able to move more quickly through the court.
For larger value estates, a substantial amount of paperwork is required to validate the will, determine asset distribution, settle disputes, pay off remaining debts, and finally close the estate by paying the decedent's final taxes. This process can be time-consuming and vulnerable to challenges from family members and creditors.
A checklist of documents to gather may include the following:
Revocable trust documents
Heir and beneficiary contact information
Pre- and post-nuptial agreements
Three years of federal and state income and gift tax returns
Life Insurance policies
Real estate deeds
Titles to vehicles
Statements of financial accounts
Contracts and business agreements
Other assets that are known
Debts like credit cards, car payments, etc.
Ongoing bills like mortgages
Medical and funeral expenses
Probate Proceedings Without a Will
Attorney Connelly explained that if someone passes away without a will, their estate will be subject to their state's intestacy laws. This means who receives what will depend on their closest relatives, such as their spouse, children, parents, or siblings. However, it's important to note that not all property is subject to these rules. Any property that passes outside of a will is not subject to intestacy laws.
When property is placed in a living trust and beneficiaries are named, it will pass directly to them. This also applies to other properties, such as life insurance or retirement accounts with a directly named beneficiary. However, any individual property without a beneficiary designation will be subjected to the probate process at the court's discretion.
There are some assets that will avoid the probate process under state property title, state contract, or state trust law. These assets can include:
Beneficiary-designated life insurance policies
Beneficiary-designated retirement funds
Pay upon death or transfer upon death accounts
Joint tenancy properties with rights of survivorship
Tenancy by the entity
All trust property
Cost of Probate
Attorney Connelly explained that probate can be quite costly, especially in more complicated cases that may take years to resolve. This is why many people seek our services to develop an estate plan that minimizes probate proceedings. While the probate process can be frustrating for rightful heirs, it is necessary to comply with legal requirements. The cost of probate varies by state but typically involves administrative fees and legal expenses that can amount to five to ten percent of the estate's value. In some cases, costs can even reach up to twenty percent.
Additional expenses may include compensation for the executor, court fees, and probate bonds, which may be refunded after probate proceedings are completed. Attorney Connelly noted that beneficiary disputes are the most common reason for high probate costs, as ongoing litigation can be expensive. Preparing and filing the decedent's last estate tax return and any resulting audits may also increase the cost of probate.
How can one avoid the probate process? Attorney Connelly suggests creating an estate plan with a revocable living trust to allow assets to pass outside probate. Depending on your situation, other types of trusts may also be recommended. It's crucial to keep the named beneficiaries on accounts that pass outside of probate up to date. Regularly reviewing your estate plan with our office can help reduce probate court interactions and simplify the entire process.