There are few things as traumatic as dealing with the death of a parent, sibling, or spouse. It is a reality that we will all face at some point in our lives, and when we do, the pain experienced is often exacerbated by the legal issues death often brings. Dealing with insurance companies, locating and reading the will, and coming up with a fair process are a few of the draining but necessary things to handle. Add in money, assets, investments, and contentious family members, and it is no wonder that many families are overwhelmed by this life event. Looming over it all is the specter of probate, a process that few people understand but is crucial in the tying up of your loved ones’ affairs.
Archaic legal terms like “tenancy-in-common” or “joint-tenancy with rights of survivorship” can frighten those without any legal backround. However, probate is simpler than it appears, and preparing for it early can lessen the emotional stress and strain your family will experience when you are eventually faced with the process.
What Is Probate?
In simple terms, probate is nothing more than the process a legal court takes to conclude all your legal and financial matters after your death. Essentially, probate is the process by which a court distributes your estate. If you’ve prepared a will, the court will distribute according to that. Sounds simple, right?
Unfortunately, it’s rarely that easy. But that’s because most people haven’t written a will. If you do not have a written will, then the court and an appointed administrator will decide how your estate will be distributed. And don’t assume for a second that your spouse or your children will automatically get everything or an equal share.
Over the years, while much of the legal system has been made easier and more accessible, the probate process has remained lengthy and complex for people who have not prepared for it, and even to an extent for those who have prepared. If there is no will, or if there are a large number of assets, these problems can be exacerbated. However, you do not have to be rich to encounter problems. Being wealthy adds complications, but the average middle-class family will deal with a number of problems if they do not prepare.
The Problems of Probate
The probate process can take a long time. If your heirs need their inheritance to pay for college, immediate medical bills, or other time-sensitive items, then they may have a problem. There are additional expenses with waiting for the probate process as well. For example, if real estate is involved, most likely a mortgage and homeowners insurance need to be paid on a house that no one may be living in. Depending on the duration of the probate process and the amount of the home’s expenses, this problem of time can add steeply to the cost.
The settlement time-frame for many estates is from nine months to two years. Complex or contested estates can take much longer. With few exceptions, your heirs will have to wait until probate is concluded to receive the bulk of their inheritance. But in some cases, by that point, the estate may have exhausted itself simply to cover its expenses.
Nothing in the legal system is free. If the court is working from a valid will, then there will be court costs and fees. If there is no will, or if its validity is being challenged, the price to help administer the estate will be high.
According to the American Bar Association, probate and administrative fees can consume between 6% and 10% of a person’s estate. That percentage is calculated before any deductions or liens are taken out.
3. Lack of Privacy
The proceedings of the probate courts are a matter of public record. Anyone with the time and inclination can go to the courthouse and find out exactly how much you left to each heir and to whom you owed money.
Do not think of this as a trifling matter, just because you may not be wealthy or famous – a spurned ex, reporters, dubious investment advisors, or real estate investors could all get this information and cause you and your family problems. Don’t think that just because you do not have the paparazzi outside your house that no one cares. Probate court leaves your heirs with little or no privacy.
4. Family Squabbles
Many families have been torn apart by the arguments that can erupt after the death of a family member. If there are blended families because of divorce, a large asset base, or family members that do not like or trust the person you choose to be executor of will, there may be a contested will. This is a problem that has nothing to do with the probate legal process, but involves it.
Anyone can contest the contents of a will. If a will is contested, your heirs will have to go to court and retain lawyers. The probate judge will appoint an administrator, and they will meet with lawyers to discover who has a valid claim. At this point, it is like any other court proceeding with witnesses, evidence, and testimony. This will cause the problems of time – and money – to skyrocket. If there is salacious material involved, you can bet your families feud will go public.
For purposes of the state, pets are considered property. That means just like your couch or a favorite painting, it’s up to you to decide who gets Fido or Fluffy. Though directing in your will who you wish to care for your pets is better than doing nothing, there are actually trusts for pets in which you can establish how you want a pet taken care of, and dedicate funds toward that purpose. If you are getting a trust set up for your family, you probably will not need a separate one for your pet, as it can made part of the larger trust.
Avoiding the Pitfalls of Probate
The best way to deal with a problem is to avoid it. When it comes to probate, this is easy, as the process is structured and can be bypassed with proper knowledge and planning. More importantly, some of this planning can be done without lawyers – at least, in the beginning. First, you start by understanding which assets bypass the probate process, and which ones are included in it.
Assets That Bypass Probate
- Life insurance
- Pension plans
- Personal annuities
- Buy/sell agreements
Smaller estates are also able to bypass or go through an expedited probate process in certain states. New York, for example, allows a summary probate hearing for estates worth less than $30,000. Other states allow affidavits.
The best way to find out what your state requires is to do a quick Google search for your state followed by the words “probate process.” Be sure that you pull your information from a state website that has been recently updated – web searches can pull page results that are from webpages dated from prior years. Also, be certain to verify the information with an attorney, or by calling the probate court.
Assets that are jointly owned by spouses generally bypass probate as well. Common examples of this are the home (or homes) that your parents live in, or that you and your spouse own. If both names are on the title, then it’s considered joint property.
Joint checking and savings accounts are another everyday example. The real issue is not the asset, but how it is titled. The rule of thumb is that if more than one person is on the title of the asset, then it is jointly owned, and will therefore bypass probate.
This is a common ownership arrangement for spouses – however, you can’t assume that just because you’re married your spouse’s property will pass directly to you in the event of his or her death. Plus, state laws differ. How the courts handled your brother-in-law’s estate in California may not be at all how the courts would handle your property if you reside in another state. This is where legal jargon and concepts enter the fray, and you should turn to an attorney for guidance.
Any and all assets that do not fit the situations listed above – such as homes, investment accounts, boats, cash, jewelry, and other assets owned by a single person (usually a surviving spouse or single person) – must pass through probate. That is, unless you set up a trust.
A trust may enable you to pass your estate on to your heirs without ever going through probate. For many people, trusts are thought of as something children of wealthy people get when they turn 18. And while that’s true, it is also a tool for the middle-class.
A trust is a legal entity in which assets become the property of the trust, and are overseen by a trustee. A trust can own anything from real estate, investment and banking accounts, vehicles, and other assets. The trust also has a beneficiary, just like a life insurance policy.
Benefits of a Trust
- Setting up a trust allows your heirs to bypass the probate process.
- Skipping over the probate process saves your heirs time, money, and retains your privacy and their privacy.
How to Set Up a Trust
Work with an attorney to set up a trust – but whatever you do, do not use off-the-shelf forms. There will be a cost to set up your trust, but it will be less expensive than setting it up incorrectly or not setting one up at all. The cost can be as low as $500, or more than $2,000. It all depends on the state you live in, the type of trust you need, and the size and diversity of the assets you own.
Write a Will Today
Creating a will is the first and most important thing you must do when it comes to probate and estate planning. Without one, neither your family nor the court system can know your last wishes.
Creating one is not hard to do. A simple letter will suffice, or if you want it to be more formal, you can purchase forms at any office supply store. Make sure you have a witness to the will and that you both sign and date it. Having the will notarized is also a good idea. Though it is always ideal to construct your will – which is a legal contract – with the help of an attorney, it’s also best to have at least something in place until you’re able to do so. At the very least, have an attorney review the will you draft for potential issues if you can not afford to have one write it. You can also use online services like LegalZoom to create a will.
But having a will means nothing if the family cannot locate it after you pass. Create multiple copies: one for yourself, a second for your witness, and a third copy in the hands of a lawyer. Excellent places to store your will are a safe in the home, a safe deposit box, or with your lawyer or the executor of your trust, if you have one. Do not scan the will and keep digital copies. Digital imaging is already at the point where a scanned signature can be easily faked.
Remember: Once you write your will, you must remember to keep it updated. Any significant life change or asset purchase should trigger either an addendum or revision.
Also, if you have children, you must determine who should care for them. Though the issue of custody is not a probate issue (it’s a family court issue), planning and setting aside funds for their care could be the most important aspect of establishing how your affairs will be handled after you pass.
When to Call the Lawyers
If you have a large asset base, kids with a spouse from whom you are divorced, community property, or a business, you must meet with a lawyer when setting up your will. The process of writing it is simple, but in these circumstances there are more complicated issues you will need to consider.
Once you have done that, meet with a financial advisor and lawyer who specializes in probate or estate planning to decide in what ways you can avoid the probate process. Your situation may require a trust, or you may be able to transfer assets (cash) into life policies, annuities, or a different form of retirement account.
The key is to do it now, so that in the future, when it is too late for you to do anything, your family can focus on remembering their life with you, and not spend their time occupied with judges, lawyers, and family squabbles.
When it comes to financial matters, most problems and difficulties can be avoided with proper planning. Some things are, of course, easier than others, but the key is to sit down, analyze the situation, and then make and execute a plan. Dealing with the idea of passing on is never easy, but facing the decisions now will make it less emotionally traumatic for your family and heirs later on.