Have you created a proper estate plan? If not, your assets must first pass through the court process known as probate before they can be distributed to your heirs.
What is Probate?
Like most court proceedings, probate can be time-consuming, costly, and open to the public. Because of this, avoiding probate of a will and keeping your family out of court is a central goal of most estate plans.
During probate, the court supervises numerous legal actions, all of which are aimed at finalizing your affairs and settling your estate. Although we’ll discuss them more in-depth, probate typically consists of the following processes:
- Determining the validity of your will (if you have one)
- Appointing an executor or administrator to manage the probate process and settle your estate
- Locating and valuing all of your assets
- Notifying and paying your creditors
- Filing and paying your taxes
- Distributing your assets to the appropriate beneficiaries
In most cases, going through all of these steps is a burden on your loved ones. It’s expensive, can take a long time, and is rarely convenient.
By implementing the right estate planning strategies, you can help your loved ones avoid probate or at least simplify the process. In this two-part series we’ll explain:
The probate process and how it impacts your family.
How you can avoid probate of a will with savvy planning.
When is Probate of a Will Required ?
Probate will usually be necessary if you leave your heirs without an estate plan. In general, this includes those individuals who have no estate plan at all, those whose estate plan consists of a will alone, and those who have a will that’s deemed invalid by the court.
Even if you have a will in place, your loved ones will still be required to go through probate upon your death. Therefore, if you want to keep your family out of court and out of conflict when you die, you shouldn’t rely solely on a will.
If you die without a will, it’s known as dying intestate, and in such cases, probate is required to pay your debts and distribute your assets. However, since you haven’t expressed how you wish your estate to be divided among your heirs, your assets will be distributed to your closest living relatives based on your state’s intestate succession laws. These laws typically give priority to spouses, children, and parents, followed by siblings and grandparents, and then more distant relatives. If no living heirs can be found, then your assets go to the state.
Some states allow estates with a relatively low value to bypass probate and use an abbreviated process to settle the estate. For example, Texas law allows estates with a total value of less than $75,000 to skip probate. In those cases, beneficiaries can claim the estate’s assets using simpler legal actions, such as by filing an affidavit or other form.
Additionally, when an individual’s debts exceed the value of their assets, or a person has no assets at all, probate is often not initiated, and the estate is settled using alternative legal processes.
How Probate Works
The probate process is largely determined by whether you had a valid will in place at the time of death or incapacity. However, even in cases where no will exists or the will is deemed invalid, the probate process is quite similar. Once the court appoints someone to oversee the probate process on your behalf, the process unfolds in a nearly identical manner, regardless if you had a will or not.
- Authenticating The Validity Of Your Will
Following your death, your executor is responsible for filing your will and death certificate with the court, and this initiates the probate process. From there, the court must authenticate your will to ensure it was properly created and executed in accordance with state law, and this may involve a court hearing.
Notice of the hearing must be given to all of the beneficiaries named in your will, along with all potential heirs who would stand to inherit under state law in the absence of a will. This hearing gives these individuals the opportunity to contest the validity of your will in order to prevent the document from being admitted to probate.
For example, someone might contest your will on the grounds that it was improperly executed (signed, witnessed, or notarized) as required by state law. Or someone may claim that you were unduly influenced or coerced to change your will. If such a contest is successful, the court declares your will invalid, which effectively means the document never existed in the first place.
- Appointing The Executor Or Administrator
If you created a will, the court must formally appoint the person you named in your will as your executor before they can legally act on your behalf. If you died without a will, the court will appoint someone—typically your closest living relative—to serve in this role, known as your personal representative or administrator.
In some cases, the court might require your executor to post a bond before they can serve. The bond functions as an insurance policy to reimburse the estate in the event the executor makes a serious error during probate that financially damages the estate.
- Locating and Valuing Your Assets
Once the probate process begins, the executor must identify, locate, and take possession of all of your assets for appraisal to determine the total value of your estate. This includes not only those assets listed in your will and other estate planning documents, but also those you may have not included in your estate plan. This is why keeping a regularly updated inventory of your assets is so important.
Any assets the executor is unable to locate will end up in your state’s Department of Unclaimed Property. Across the U.S., there is more than $58 billion (yes, that’s billion with a ‘b’) of assets sitting in State Departments’ of unclaimed property. Currently, in New York, alone, there are $17 billion in assets sitting in the state’s Office of Unclaimed Funds.
Though the executor or your estate is not expected to move into your home or other residence, he or she is required to ensure that your mortgage, homeowner’s insurance, and property taxes are paid while probate is ongoing. These and all other debts can be paid from your estate.
Once all of your assets have been located, the executor must determine their value, which is typically done using financial statements or appraisals. From there, the combined value of all of your assets is used to estimate the total value of your estate.
- Notifying and Paying Your Creditors
To ensure all of your outstanding debts are paid before your assets are distributed, the executor must notify all of your creditors of your death. In most states, any unknown creditors can be notified by publishing a death notice with your local newspaper.
Creditors typically have a limited period, usually one year, after being notified to make claims against your estate. The executor can challenge any creditor claims he or she considers invalid, and in turn, the creditor can petition the court to rule on whether the claim must be paid.
From there, valid creditor claims are then paid. The executor will use your estate funds to pay all of your final bills, including any outstanding medical and funeral expenses.
- Filing and Paying Your Taxes
In addition to paying all of your outstanding private debts, the executor is also responsible for filing and paying any outstanding taxes you owe to the government at the time of death. This includes personal income and capital gains taxes, as well as state and federal estate taxes, if your estate is valuable enough to qualify.
That said, the federal estate tax exemption is currently set at $12.06 million for individuals and $24.12 million for married couples, so most families won’t have to worry about estate taxes. And for those who do exceed that threshold, there are several strategies you can use to reduce the size of your estate to avoid these taxes.
Any taxes due are paid out from estate funds. In some cases, this may require liquidating assets to raise the needed cash.
- Distribution Of Your Remaining Assets
Once the court confirms all of your debts and taxes have been paid, the executor can petition the court for authorization to distribute the remaining assets in your estate to the beneficiaries named in your will. Or the executor will distribute according to state intestate succession laws if you didn’t have a will. Typically, this requires the executor to file an accounting of all transactions he or she engaged in during the probate process.
Once all assets have been distributed, the executor must file a petition with the court to close probate of your will. If all creditors and taxes have been paid, your assets have been distributed, and there are no other outstanding issues to be addressed, the court will issue an order formally closing the estate and terminating the executor’s appointment.
Keep Your Family Out Of Probate Court
One of the primary goals when creating your estate plan is to keep your family out of court and out of conflict no matter what happens to you. If your family has to go through probate, then your estate plan falls woefully short of that goal – leaving your loved ones stuck in an unnecessary, expensive, time-consuming, and public court process. This happens to everyone, even celebrities like Aretha Franklin.
Fortunately, it’s easy for you to spare your family the burden of probate with proactive planning. Stay tuned for our Part 2 blog where we’ll look at the ways you can do just that. Until then, if you haven’t put an estate plan in place or have one that would force your family to go through probate, get in touch with us! At Artisan Law we specialize in helping you plan not only for your own future, but also the future of your family too.