What is probate?
Losing a loved one is incredibly tough. Coping with grief alone can feel overwhelming, and on top of that, there is the daunting task of managing their assets and estate.
Probate is big part of that process.
Probate is the legal process of administering a deceased person’s estate. It involves validating a will, collecting assets, paying creditors and taxes, and distributing property to beneficiaries or heirs.
This court-supervised process must be concluded before any assets can be distributed to beneficiaries. Probate proceedings ensure that all claims against the estate have been properly addressed.
How does probate work?
When someone passes away, their estate’s assets might go through probate. Essentially, the deceased's former assets are analyzed, and their remaining property is transferred to various parties.
The process often involves probate court, where the decedent’s assets are reviewed, and a final ruling is handed down, designating the division of assets to the proper beneficiaries.
The first step in the probate proceeding will be to check if the decedent had a valid will. Most people have wills, but for those that don’t, here’s what could happen.
How does probate work without a will?
If someone passes away and has not established a will, they die “intestate.” This term is also used when the probate court deems a will invalid.
The probate process for an intestate estate involves the distribution of the deceased person’s assets in accordance with state laws. In cases where the decedent has no assets, probate may not be required.
Typically, a probate court proceeding commences by appointing an administrator to manage the deceased’s estate. This administrator acts as an executor, handling all legal claims against the estate and settling outstanding debts. By doing so, they ensure the smooth administration of the deceased’s affairs.
The administrator’s responsibility is to locate all legal heirs of the deceased, which may include surviving spouses, children, and parents.
The probate court will carefully evaluate the assets to determine the distribution process among the legal heirs. In most states, probate laws stipulate the division of property among the surviving spouse and children of the deceased. This ensures a fair and equitable distribution of assets.
There is also a chance that assets may be transferred to the government if there are no obvious beneficiaries. The term for this process is called “escheatment.” Each state has its own laws governing escheatment.
How does probate work with a will?
A person who has passed away and left a legally valid will is a “testator.” Upon the testator’s death, the responsibility of initiating the probate process falls upon the executor, who is often a family member. Additionally, the will may contain specific instructions regarding the appointment of an executor.
The executor holds the responsibility of submitting the will to the probate court. Different states may have varying regulations regarding the timeframe for filing a will following a person’s passing. Submitting the will serves as the trigger point for commencing the probate process.
Probate rules for spouses
Under community property laws, both spouses can be recognized as joint property owners in the event of intestacy. As a result, the distribution hierarchy typically begins with the surviving spouse. This legal framework acknowledges spouses’ equal ownership and rights and ensures a fair and orderly distribution of assets.
If the deceased was not married or a widow(er) when they passed, their property will typically go to any surviving children. If no spouse or children exist, other related heirs may then be considered.
Is probate always necessary?
Probate is not always necessary. In some cases, estates may be small enough to qualify for simplified probate proceedings or “summary administration,” eliminating the need for a formal court proceeding.
In addition, certain types of assets, such as life insurance policies and retirement accounts, can often bypass probate due to their beneficiary designations. These assets are typically distributed directly to the beneficiaries without going through probate.
It’s important to remember that each state has its own specific laws regarding the probate process, so it may be best to consult an experienced estate planning attorney.
What is involved in the probate process?
The probate process typically involves several steps, including the following:
File a petition to open probate with the court system
Under state laws, it is typically mandatory for the executor to promptly submit the will to the local probate court following the decedent’s passing. Additionally, this individual may be required to file both the death certificate and a petition to initiate probate simultaneously.
Next, a probate court judge determines the will’s legal validity. This typically involves a hearing where beneficiaries listed in the will review and accept or object to their role. The court decides how to proceed when wills are contested.
Once that occurs, the executor receives and signs letters of authority or administration indicating their legal agreement to oversee estate matters in the probate process.
Identify assets
The executor must identify the deceased’s assets and calculate their total value. This involves reviewing bank accounts, investment statements, and tax documents, among others.
The executor may also be required to assume physical custody of assets like valuable artwork and vehicles. However, there is no obligation to acquire real estate.
Nonetheless, the executor must ensure that property taxes, insurance, and mortgage payments are adequately handled during the probate process. The decedent’s estate can cover these expenses and any other outstanding debts.
Settle debt with creditors
In addition to managing the affairs of the deceased, an executor is responsible for identifying and contacting any outstanding creditors.
These creditors usually have a specific timeframe within which they can assert their claims against the estate of the deceased. It’s important to note that these time frames may vary depending on the state. These claims are challengeable and will commonly prompt the creditor to petition the court to make a final ruling.
In both cases, the estate must settle official debts like medical bills and outstanding expenses the decedent couldn’t cover. Major debt at the time of death reduces the assets that can legally transfer to heirs.
File the deceased’s taxes
As the saying goes, “nothing is certain except for death and taxes.” This holds true even after you die. If you have any unpaid taxes when you pass, your executor will have to pay off the balance with your remaining assets.
The due date for estate taxes is normally within a year after death. But you can actually reduce the size of your estate during your lifetime by transferring property without having to pay taxes. It's best to seek the help of a team of professionals to help with reducing your estate.
Distribute assets
An executor typically needs to provide the probate court with documentation outlining all transactions carried out during the probate process. These filings also specify the remaining estate’s exact value. However, in some states, the executor may waive this requirement if all beneficiaries agree it’s unnecessary.
Once the court has verified the settlement of all debts and taxes, it can proceed with the distribution of the remaining estate following the provisions stated in the will.
Is it possible to avoid probate?
The probate process can potentially diminish the value of the decedent’s estate before it can be distributed to the rightful heirs. Nevertheless, there exist numerous estate planning strategies that individuals can employ during their lifetime to safeguard their assets from the probate process.
Payable on death
One common method is designating your bank accounts as “pay-on-death” accounts. The process is pretty simple: fill out a form from your financial institution and specify a beneficiary. In some states, you can also convert other assets, like securities, vehicle registrations, and real estate deeds, into pay-on-death property.
Trusts
Some people also set up a revocable living trust. These accounts can hold various valuable items like your home, cars, and other expensive property. When you transfer property to the trust, it no longer belongs to your estate and is exempt from the probate process.
Trusts allow you to specify how you want to divide your property among your heirs. Revocable living trusts also allow you to designate a trustee to manage and distribute your assets after you’re gone.
Gifting
Lastly, you can also “gift” your assets while you’re alive. In 2023, you can gift up to $17,000 per individual ($34,000 for spouses) without paying gift tax.
Final word
Probate may sound scary, but with help from the right professionals, you can make sure your assets are distributed according to your wishes.
It’s important to plan ahead and be aware of all your options to keep your loved ones from having to deal with unwanted complications.
Talk to Facet’s team of experts to get your estate plan in order today.
