Many of us hope to leave something behind for our loved ones when we pass away. But the probate process is complex. To understand how to better manage potential probate fees, let’s explore what probate is and how the process works.
What Is Probate?
Probate is the legal process that wraps up a person’s legal and financial affairs after their death. During the probate process, a person’s property is identified, catalogued, and appraised. In addition, probate makes certain any outstanding debts and taxes are paid. It can be a complex process, filled with very specific legal requirements.
For example, if someone dies without a valid will, the probate court sees that the deceased person’s assets are distributed according to the laws of the state.
If someone dies with a valid will, the probate court is charged with ensuring the deceased person’s assets are distributed according to their wishes.
Every estate passes through probate following the owner’s death. Probate can take anywhere from a few months to more than a year. If there is a will, and one or more of the heirs chooses to contest the document, the process can take a lot longer.1
Probate also can be expensive. Even though probate costs are capped in some states, they may reach 5 percent or more of the estate’s value.2 That’s calculated on the gross value of the estate – before taxes, debts, and other expenses are paid. And if the probate process is challenged, legal costs can rise.
Finally, probate takes place in a public court. That means everything is a matter of public record, so there is no privacy. Anyone can find out exactly what was left behind and how much each of a deceased person’s heirs received. They can also review the court records for the deceased person’s estate. Those who have concerns for their heirs’ privacy may want to take steps to manage the probate process.
Property That May Avoid Probate
Some assets can be structured, so they may not have to go through probate. Here’s a partial list of assets that may avoid the probate process:
1. Property held in a trust3
2. Jointly held property (but not common property)
3. Death benefits from insurance policies (unless payable to the estate)4
4. Property given away before you die
5. Assets in a pay-on-death account
6. Retirement accounts with a named beneficiary
1. FindLaw.com, 2020
2. LegalMatch.com, 2020
3. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.
4. Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.