Avoiding Probate: Is It Worth It?
When you die, your estate goes through a process that
manages, settles, and distributes your property according to the terms of your
will. This process is governed by state law and is called probate. Probate
proceedings fall under the jurisdiction of the probate court (also called the
Surrogate's, Orphans', or Chancery court) of the state in which you are
domiciled at the time of your death. This court oversees probate of your
personal property and any real estate that is located in that state. If you own
property located in a state other than the state in which you are domiciled at
the time of your death, a separate "ancillary" probate proceeding may need to
be initiated in the other state.
Note: "Domicile" is a legal term meaning the state
where you intend to make your permanent home. It does not refer to a summer
home or a temporary residence.
Items that are subject to probate are known as probate
assets. Probate assets generally consist of any property you own
individually at the time of your death that passes to your beneficiaries
according to the terms of your will. Examples of nonprobate assets include
property that is owned jointly with right of survivorship (e.g., a jointly held
bank account) and property that is owned as tenants-by-the-entirety (i.e., real
property owned jointly by a husband and wife). Other examples are property that
passes to designated beneficiaries by operation of law, such as proceeds of
life insurance and retirement benefits, and property held in trust.
Property that does not pass by will, right of survivorship, beneficiary designation, or trust will also be subject to probate.
Why avoid probate?
Most wills have to be probated. The rules vary from state to
state, but in some states, smaller estates are exempt from probate, or they may
qualify for an expedited process.
Probate can be slow. Depending on where your executor
probates your estate and the size of your probate estate, the probate process
can take as little as three months or as long as three years. Three years can
be a long time to wait for needed income. It can take even longer if the estate
is a complicated one or if any of the heirs are contesting the will.
Probate can be costly. Probate costs usually include
court costs (filing fees, etc.), publication costs for legal notices,
attorney's fees, executor's fees, bond premiums, and appraisal fees. Court
costs and attorney's fees can vary from state to state.
Typically, the larger the estate, the greater the probate costs. However, if a
smaller estate has complex issues associated with its administration or with
distribution of its assets (e.g., if the person who died owned property in several
states), probate can be quite costly.
Probate is a public process. Wills and any other
documents submitted for probate become part of the public record--something to
consider if you or your family members have privacy concerns.
Why choose to go through probate?
For most estates, there's usually little reason to avoid
probate. The actual time and costs involved are often modest, and it just
doesn't make sense to plan around it. And there are actually a couple of
benefits from probate. Because the court supervises the process, you have some
assurance that your wishes will be abided by, and if a family squabble should
arise, the court can help settle the matter. Further, probate offers some
protection against creditors. As part of the probate process, creditors are
notified to make their claims against the estate in a timely manner. If they do
not, it becomes much more difficult for them to make their claims later on.
In addition, some states require that your will be probated
before the beneficiaries under your will can exercise certain rights. Among the
rights that may be limited are the right of your surviving spouse to
waive his or her share under the will and elect a statutory share instead, use your residence during his or her
remaining life, set aside certain
property, and receive a family allowance.
How to avoid probate
An estate plan can be designed to limit the assets that pass
through probate or to avoid probate altogether. Property may
be passed outside of probate by owning property jointly with right of
survivorship; by ensuring that beneficiary designation forms are completed for
those types of assets that allow them, such as IRAs, retirement plans, and life
insurance (to avoid probate you shouldn't name your estate as beneficiary); by putting property in a trust; and by making lifetime gifts.