A Brief Overview on Probate and How Estate Planning Can Help
by Don Drake, Connelly Law Offices, Ltd.
"Many people who I first meet with to discuss probate are surprised to find out that this process can actually be avoided in some cases with a good estate plan and the use of certain trusts," said certified elder law Attorney RJ Connelly III. "The problem with probate proceedings is that they are part of the public record and can be very time-consuming and expensive. Unfortunately, probate is necessary in most cases, so it is important to understand how to navigate the process." Given that, we asked Attorney Connelly to give us a brief overview of the probate process.
"Probate proceedings seek to validate the decedent’s last will and retitle the estate’s assets into the name of heirs according to the deceased’s wishes," said Attorney Connelly. "These court-supervised proceedings ensure estate debts are paid and oversee the distribution of assets to heirs."
In most cases, the family will come together after the loss and review a professionally written will and other crucial estate planning documents. "Unfortunately, without a well-organized estate plan, the probate process can take much longer if family members do not cooperate or be located," Attorney Connelly continued. "In the best-case scenario, family members will be tasked with gathering information necessary for the court, which can be difficult and emotional given the situation and the emotions involved."
Probate Court Proceedings
"In these proceedings, the petitioner, usually the estate executor or personal representative, begins the process by filing a death certificate and a last will to the probate court," said Attorney Connelly. "It is also important to produce a list of known creditors and names as well as contact data of the decedent’s heirs. Smaller estate probate processes and those estates not contested by heirs can usually get through probate court fairly quickly and efficiently."
What makes probate even more difficult is that laws regarding the process are state-specific, and most states set valuation thresholds, which can be different from state to state. "For instance, if an estate value is less than $75,000 and no one contests the will, less formal probate hearings may be able to move more quickly through the court," stated Attorney Connelly. "For larger value estates, there is a substantial amount of necessary paperwork to validate the will, determine asset distribution, settle disputes, pay off remaining debts, and ultimately close the estate by paying the decedent’s final taxes. This is time-consuming and open to challenges from family members and creditors."
A checklist of documents to gather may include:
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
"If the decedent passes without a will, the decedent's estate will be subject to that state's intestacy laws," Attorney Connelly pointed out. "In such cases, who gets what will depend on who the closest relatives are, with the most likely recipients being the spouse, children, parents, or siblings. Unfortunately, intestate succession may not determine where all your property goes. Property that passes outside a will is not subject to intestacy rules."
As an example, property that is placed in a living trust passes directly to the beneficiaries that are named. The same is true for other properties -- like life insurance or a retirement account -- for which a beneficiary is directly named. All individual property without a beneficiary designation will be subject to the probate process at the court’s direction.
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
"As I stated earlier, probate can be very expensive," said Attorney Connelly. "Complex probate processes can take years to finalize, which is why many individuals retain our offices to develop a comprehensive estate plan to minimize probate proceedings. Lengthy proceedings are frustrating for heirs who are rightful beneficiaries, but they must comply with the probate process." The average cost of probate varies by state; however, five to ten percent of an estate’s value in administrative costs and legal fees is typical. In some cases, estates may lose as much as twenty percent of their value.
"Complex probate processes can take years to finalize which is why many individuals retain our offices to develop a comprehensive estate plan to minimize probate proceedings." ---Attorney RJ Connelly III
Other costs can include executor compensation, court fees for filings and paperwork, and a probate bond. After the probate proceedings are complete, a probate bond may be refunded. "The most common reason for high probate costs occurs when beneficiaries contest the will," said Attorney Connelly, "as ongoing litigation can be expensive. Issues relating to preparing and filing the decedent’s last federal estate tax return and any ensuing audit may also increase the cost of the probate process."
So how can this process be avoided? "Most individuals will create an estate plan with me that allows assets to pass outside the probate process, typically through creating a revocable living trust," stated Attorney Connelly. "Depending on your situation, we may recommend other types of trusts as well as ensure that named beneficiaries on accounts that pass outside of probate are up to date, which is extremely important. Regularly reviewing your estate plan with our office can help minimize probate court interactions and streamline the entire process."