PROBATE IS A LEGAL process that takes place after a person’s death. The specifics of the probate process vary by state, but the overarching goal in most cases includes validating and authenticating the final will, making sure debts are paid and distributing the remaining assets to the deceased person’s heirs.
If you’re curious about probate proceedings because you’re drafting an estate plan, have been asked to be an executor or are beneficiary to an estate, here’s what to know.
Probate is a court-supervised proceeding to take control of a decedent – or dead person’s – assets, says Neil Solarz, shareholder and director at Weinstock Manion, based in Los Angeles. It’s basically a method of transferring ownership from the decedent to the beneficiaries. It’s not required in the settling of every estate, so check with your state to determine when it’s necessary.
The main players during probate often include:
a. The executor or personal representative. This person helps administer the estate. They’re tasked with fascilitating the distribution of assets according to the will (or passing assets to heirs if there is no will) while settling up with any creditors. Executors may receive “letters testamentary,” which are papers giving them the authority to deal with financial institutions and other agencies on behalf of the estate. If you’re drafting up your own estate-planning documents, make sure you alert anyone you’d like to name as an executor so they aren’t caught off guard.
b. The beneficiaries. These are the folks who will inherit the assets. Relatives who are not named in the will (if there is one) but have some potential claim to the assets may make an appearance, too.
c. The creditors. They may be notified of the probate proceedings and able to collect debts owed by the estate.
d. A judge. This person presides over the probate court.
Other folks who may be involved during probate proceedings include an attorney for the executor and representatives of any young children who stand to inherit assets.
First, someone has to die. Next, a surviving person will need to gather up any documents, including the deceased’s last will and testament if there is one, to present to the probate court. They may also need to locate a death certificate.
The person will apply to begin a probate proceeding with the court. Once the will is authenticated, the executor or administrator is named and probate continues. “That will guide who’s appointed as executor or personal representative and will guide who gets what assets,” says Gerry Joyce, managing director and national head of trusts and estates at Fiduciary Trust International.
Additional steps during probate include these:
Gathering assets. The executor will begin gathering and valuing the decedent’s assets, including property, investment accounts, retirement assets and other items of value.
Alerting creditors. As probate proceedings continue, one step is to notify creditors to come and collect anything owed from the estate. Creditors may include credit card companies, contractors, mortgage holders and even the funeral home director who needs to be compensated for the memorial service. A notice is often published in a local paper. A notice of administration may also be sent to known creditors to alert them of the proceedings.
Distributing the remaining estate. After all the assets are gathered and valued, and all the debts are paid, the executor can begin the process of distributing the remainder of the estate to heirs.
Outside of the court proceedings, but part of the process, is the duty to file the decedent’s final taxes. A representative typically has nine months from the date of death to complete the tax return and make any payments.
Probate proceedings can last between several months and several years. The length will depend on your state and the complexity of disbursing the estate. Solarz, who is familiar with California estate law, says that the simplest probate proceedings take somewhere between seven and 12 months.
Some of that timeline is a requirement to give creditors sufficient time to collect money owed from the estate. They’ll typically have several months to make those claims while the probate proceedings are open.
The time it takes to settle an estate through probate is often considered one of its drawbacks.
Probate costs depend on the size of the estate and the state in which it takes place, but they generally run between 3% and 7% of the estate’s value, according to online law resource LegalZoom.
Remember that the estate, not the executor, pays most fees, so reducing costs or avoiding probate altogether can help preserve more of the estate for the heirs.
A few fees to know more about include these:
Attorney fees. These will vary depending on the size of the estate and location of the probate. California is a state in which the fee is set by statute, Solarz says, and maximum fees break down like this:
a. 4% of the first $100,000 of the estate.
b. 3% of the next $100,000.
c. 2% of the next $800,000.
d. 1% of the next $9 million.
e. 0.5% of the next $15 million.
So, for example, a $1 million estate would rack up $23,000 in attorney fees.
Executor compensation. The executor of the will can collect fees for completing the work needed to perform her duties. This fee will vary depending on state law but could be an hourly fee or a percentage of the estate. In California, that same $1 million estate may end up paying an additional $23,000 in executor compensation. The person acting as executor may choose to waive these fees.
Court fees. Courts will set filing fees and other costs for paperwork needed to initiate and continue probate proceedings. In California, for example, the filing fee is $435.
A probate bond. This is kind of an “insurance policy” in case a mistake or bad actions are made in administering the will, says Chas Rampenthal, attorney assist segment leader at LegalZoom. The bond may be refunded after the probate proceedings are complete, minus any nonrefundable fees.
Other fees. Fees for litigation, tax preparation, selling property and other services may be charged to the estate.
While going through probate isn’t necessarily a bad thing, it has drawbacks. Firstly, it can be expensive. It’s also public, and heirs may not be pleased with open (and potentially dramatic) legal proceedings. Thirdly, it can take a long time. While probate is occuring, loved ones remain in limbo awaiting the final decisions and disbursements of their inheritance.
“You’ll often hear people say, ‘Avoid probate,'” Joyce says. “I think, generally speaking, that’s good advice.”
One benefit can be the time limit during which the creditors are allowed to make claims against the estate. Lenders who miss the proceedings may not be able to collect money once they’ve ended.
There are several methods for avoiding probate, but they often need to be done while the testator – the person writing their will – is still alive.
Create a lifetime revocable trust. This estate-planning strategy requires forming a trust while the testator is still alive. Assets are transferred to the trust and don’t pass through probate at death. Because the trust is “revocable,” the testator has power to make changes to it while he or she is alive.
Pass assets outside of your will. Assets that bypass the will may not need to go through probate. Those may include assets passing by contract, such as your life insurance policies, retirement plans and IRAs. These typically have beneficiary designations that specify who inherits the accounts.
Assets that pass by law such as property owned as joint tenants with rights of survivorship can dodge probate as well.
Reduce the size of your estate. Modest estates – the cutoff will depend on your state – often don’t need to go through probate. To reduce the size of your estate, use strategies to pass assets outside of your will or spend down your money during your lifetime.
For example, giving savvy cash gifts, funding a 529 college savings account for a grandchild or paying the education or medical bills of a nephew can help reduce your estate’s value. Remember to use strategies to avoid a gift tax if the amounts are large enough.