Personal Finance

Probate: What It Is and How It Works

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What is probate?

Probate is a court-supervised legal process for distributing the assets and property of someone who has died. Typically, the estate executor or attorney initiates probate. A probate court validates the deceased’s will, appoints an executor to distribute the estate to beneficiaries and pay the estate’s debts or taxes.

Although probate is often straightforward, many people want to avoid it. The reasons can vary, but there are some common complaints about the process:

  • It can be slow. In some cases, it can take years for a probate court to finalize an estate, especially if it’s complicated or involves a contested will.

  • It can be costly. Costs vary by state, but probate generally entails executor fees, attorney costs and other administrative expenses, such as appraiser’s fees. These fees can add up fast, and they can increase if the process drags on.

  • It is public. What happens goes on in probate court does not stay there; the probate process is public record.

How does probate work?

Although laws and procedures tend to vary from state to state, the probate process largely depends on whether the deceased person had a will.

Probate with a will

Here’s how the probate process often starts if the deceased person had a will.

  1.  A representative of the estate files the will and a certified copy of the death certificate with the probate court. The court then validates the will to make sure it is authentic. This step is easiest when the will includes a self-proving affidavit — a sworn statement signed by the author and witnesses that legally proves its validity. In the absence of a self-proving affidavit, a new sworn statement signed by a witness or live testimony from a witness can help authenticate the will.

  2. The court appoints an executor or personal representative of the estate. Generally, the will names an executor or personal representative, and the probate court judge appoints that person. If the will does not include those instructions, the probate court will appoint someone (usually a direct family member) to be the executor or personal representative. 

  3. The court gives the executor or personal representative letters of testamentary, which are (typically in conjunction with a death certificate) proof for banks and other financial institutions that the executor has permission to handle the deceased’s assets.

Probate without a will

If there is no will, the deceased person passed away “intestate.” 

  1. In this case, the court must hold an administrative proceeding to determine how the estate will be divided. The court will name an administrator for the estate.

  2. The estate administrator follows the probate judge’s instructions on how to distribute property and assets.

Probate steps with or without a will

Once these preliminary steps are completed, the probate process typically moves forward with the following steps:

  1. Post a probate bond. In many cases, the court will require the executor or personal representative of the estate to post a probate bond (also called a fiduciary bond). The bond is a guarantee that the executor or representative will follow state laws and the terms of the will. If the executor or representative fails to do so, family members of the deceased can file a claim against the bond. Probate bonds help protect the executor of the estate in the event that something goes wrong.

  2. Notify beneficiaries and creditors. A beneficiary is the person or persons who receive some or all of a deceased person’s assets. The executor or representative must identify and inform beneficiaries and creditors about the death. Creditors have a limited amount of time to respond and submit claims against the estate. If a creditor misses the deadline, it can no longer file a claim.

  3. Appraise property and assets. The executor or representative must determine the value of all probate assets in the estate. Typically, the executor will hire an appraiser to determine property values, but this can also involve drafting an inventory of all personal property that will go through probate, which can be time-consuming.

  4. Pay outstanding debts. In most cases, the first expenses the estate pays are funeral expenses and taxes. After that, the executor is in charge of paying outstanding debts to creditors who filed a claim within the appropriate time period. The executor is also responsible for disputing claims against the estate if necessary.

  5. Make distributions to beneficiaries. The executor or representative handles distributions of any remaining assets to beneficiaries in accordance with the will. Some beneficiaries may have to pay an inheritance tax.

  6. Close the estate. The executor or personal representative files a final accounting with the probate court. This report details all assets, debts paid and distributions to beneficiaries. If the court finds the report in good standing, it releases the executor or personal representative from their duties, and the estate is officially closed.

How to avoid probate

  • Have a small estate. Most states set an exemption level for probate, offering at least an expedited process for what is deemed a small estate. In some cases, “small” actually can be quite large. Check your state’s probate estate limits, and consider giving assets to family and friends before you die. This tactic might also trim or even eliminate future federal and state estate taxes.

  • Establish a living trust. Property held in trust is not part of your estate upon your death. A trustee, not you, controls the trust property and is obligated to distribute it under the terms of the trust agreement. (Learn more about living trusts.)

  • Make accounts payable on death. Bank and other accounts that are payable on death go directly to your designated beneficiary without going through probate. Some states also allow such transfers of real estate.

  • Own property jointly. Making your spouse or someone else a joint owner facilitates the transfer of the asset without the need for probate. Some ways to hold such assets include joint tenancy with right of survivorship, tenancy by the entirety and community property with right of survivorship.

What goes through probate? And what doesn’t?

Generally, property or assets that must go through probate are those that are solely in the name of the deceased person —  things such as bank or brokerage accounts, real estate or vehicles. 

In many cases, the best way to avoid probate is to establish a transfer-on-death, or TOD, on those bank accounts, brokerage accounts or real estate. That way, assets transfer to the person listed as the TOD beneficiary. 

Bank accounts, brokerage accounts and real estate can also be owned jointly (through joint tenants with rights of survivorship designations, referred to as JTWROS). Upon the death of one of the owners on such an account, the remaining assets transfer to the owner or owners who are still living.

Other examples of property that does not go through probate include:

  • Any gifts or distributions that the deceased made while alive.

  • Any property held in a trust; it will be distributed according to the terms of the trust.

It is extremely important for owners of life insurance policies or retirement accounts to maintain and update their beneficiaries on file. Policies without a listed beneficiary may have to go through probate as well.

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