Many people believe it is important is avoid probate. Some are familiar with the concept that using a “living trust” avoids probate. Others may have had a particularly bad experience with a probate court.
To understand why one might want to use or avoid probate, let’s first understand what the probate court’s role is in processing estates of decedents, sometimes called the estate administration process.
Generally, when a person dies, the probate court serves:
- To ensure that, if there was a will, it is the decedent’s true “last will and testament,” and not a forged or revoked version.
- To ensure that the decedent’s assets are safeguarded and protected from waste, theft, or neglect.
- To ensure that valid bills and debts are paid, including death and inheritance taxes, if any.
- To ensure that what remains is paid to the intended beneficiaries in accordance with the decedent’s valid last will and testament.
In short, the probate court oversees the of the decedent’s assets from the decedent’s name to the decedent’s beneficiaries, making sure along the way that all the assets are accounted for and all the bills are paid.
Much of estate administration requires filing a series of forms with the probate court, with occasional hearings and deadlines. A brief walk-through of the steps follows:
1. Application for administration or probate of will
The first step is to file an application or petition with the probate court, together with a certified death certificate and the original will and codicils. Once the probate court receives the petition, it will schedule a hearing to admit the will and appoint an executor. If there was no will, then the court will appoint an administrator. In certain circumstances, the probate court can either streamline the hearing process or dispense with the hearing if all interested parties sign waivers.
The probate court will provide the personal representative with fiduciary certificates to evidence his/her authority to act on behalf of the estate.
2. Inventory of solely-owned assets
The next step is to prepare an inventory which is a list of all the property owned by the decedent at the time of death. The property includes real estate (land and anything permanently attached to the land) and personal property (everything else the decedent owns, including cars, bank accounts, rights to sue someone, etc.). The inventory states the value of all these items as of the date of the decedent’s death. The inventory must be filed with the court and must be sent to interested parties.
Certain assets owned by the decedent need not be reported. These include anything held by a “living trust”. Legal title to such property passes without going through probate. Non-probate assets also include accounts payable to a named beneficiary (so long as the named beneficiary is not the estate), such as life insurance policies and annuities, and joint bank accounts, which transfer automatically on death to the joint owner without the need for probate court oversight. Although some assets may pass outside of probate, the executor or administrator will need to know the date-of-death value of these assets to complete the estate tax return.
3. Pay expenses and claims
The decedent may have outstanding bills of which the executor is already aware – such as the funeral bill, an ambulance bill, or payment for nursing home services.
In addition, once the executor or administrator is appointed, a “Notice to Creditors” published in a local newspaper. Creditors have four months from the date of the notice to present claims against the estate to the personal representative.
4. File estate tax returns
For estate tax purposes, the estate consists not only of the solely-owned assets but also the decedent’s interest in any joint assets or assets that pass outside of probate. Therefore, the executor or administrator must confirm the date-of-death value of all assets to complete the estate tax return.
The federal estate tax return is only required if the estate is valued at $5.5 million or more. If the estate is required to file this federal return, it must be filed within nine months after the decedent’s date of death. If estate tax is due, it must be paid at the time of filing the return.
5. Final accounting and proposed distribution
The final accounting shows all activity that occurred in the estate, starting with the value of the inventory (the value of all solely-owned assets on the decedent’s date of death), showing all bills and expenses that were paid, and finally listing a proposed distribution of the remaining assets in the probate estate.
After the executor or administrator files the final accounting, the probate court will hold a hearing and if no objections are raised, the court will accept and approve the final accounting and proposed distribution of assets to the beneficiaries. The executor or administrator then distributes the remaining assets accordingly.
The executor or administrator could make advanced distributions before the final accounting is approved by the probate court, so long as he retains sufficient assets to pay all expenses, claims, and taxes. The executor or administrator is personally liable if there is a shortfall because of making an advanced distribution.
Length of Estate Administration
The estate administration process is not a long one, usually about one year, assuming no litigation is involved. Typically, that year is spent locating and gathering assets, and waiting for the “notice to creditors” period to expire and waiting to receive clearance on any tax returns filed.
More complicated estates may take longer, particularly if the executor or administrator has no prior knowledge of the decedent’s assets and must locate them, or if disputes arise. Occasionally, liquidating assets can extend the estate administration process as well.
However, probating a will can start as a simple matter but become quite complex. Sometimes there are disagreements which must be litigated. For example, there might be questions about the will’s validity or who the personal representative should be. Or the question may be whether the executor or administrator is handling or disbursing the assets of the estate properly and according to the law.
Many times questions arise regarding the pension or insurance benefits of a deceased person. Pension and insurance benefits normally are paid outside of the estate to the beneficiary named by the deceased. If there is a question regarding the intentions or actions of the deceased (for example, did he intend to change his beneficiary from his ex-wife to his children, and did he take steps to do so), these questions often are litigated.
Costs of Estate Administration
While probate is not an inherently expensive process, we have found three reasons why probate may become expensive.
1. If the beneficiaries and/or heirs contest anything along the way, the estate will spend more time and money defending its actions or responding to objections. This typically happens when someone contests the admission of a will or the appointment of a person as personal representative. Beneficiaries could also contest the value of items included on the inventory and the payment of expenses, including any fee taken by the executor.
2. If the executor or administrator is not particularly trustworthy or intelligent, his actions (or inactions, as the case may be) could cause the estate to suffer additional expenses or drag on for an extended period.
3. The cost of probate may be exacerbated if the decedent left an ambiguous or inconsistent disposition of property in the will. A poorly drafted will, for example, could result in disputes over how assets are distributed. Additionally, the decedent may have made verbal promises to various relatives or friends that those relatives or friends seek to enforce after his passing.