Probate is the court-supervised process of validating the will of a deceased person, or decedent. It involves identifying the person’s final assets, paying their last debts and distributing their estate’s property to the proper heirs. State probate laws vary, but the process is very similar across the country, with lawyers doing most of the heavy lifting. It’s helpful, though, to know what’s involved, whether you’re writing your will or you’re an executor or beneficiary. For more hands-on guidance with estate planning, consult with a financial advisor in your area.
What Is Probate, and How Does It Work?
In simple terms, probate is the method by which a decedent’s will is processed. This typically involves lawyers and a court proceeding where the stipulations in the will are read aloud and the appropriate inheritances are handed out. The probate process can take some time, depending on the size of the estate.
Most wills name an executor, who takes charge of overseeing the probate process. This person typically has 30 days from the date of the will owner’s death to file the document with the local probate court.
If the decedent died without a will or didn’t clearly identify an executor in one, the probate court will appoint an administrator to oversee the probate process. This role often falls on the next of kin. However, a named executor or appointed administrator can always decline the role. In these cases, the court turns to someone else. This person overseeing probate must prove to the court that the will is valid.
When Is Probate Necessary?
Probate is not always required to transfer property. Several states’ laws indicate that property valued below a certain amount can be passed on to heirs without probate or through a simplified version of it. But if an estate exceeds that value, then probate must be initiated.
If a person dies without a valid will in place, they are considered to be “intestate.” To handle situations like this, each state has a set of intestate succession laws that will mandate where inheritances should go based on family relationships. For example, intestate succession usually consists of spouses, parents, siblings, grandparents, cousins and more.
Certain accounts such as 401(k) plans, individual retirement accounts (IRAs) and pensions with listed beneficiaries don’t need to go through the probate process either. The same goes for insurance policies. These funds will transfer directly to the named beneficiary following the death of the account or policy holder.
How to File and Validate a Will
Most state laws require an executor to file a will with the local probate court as soon after the death of the decedent as possible. This person may also need to file the death certificate as well as a petition to open probate at the same time.
Next, a probate court judge determines whether the will is legally valid. This usually involves a hearing in which all of the beneficiaries listed in the will have a right to look at the document and accept or object to their role in it. The court decides how to move forward in cases where wills are contested.
But how does the probate court figure out if the will is valid? In several cases, self-proving affidavits help create and finalize wills. The will grantor, along with witnesses, will sign off on these. In most cases, these documents hold enough weight for the court to kick off the probate process.
Once that happens, the executor receives and signs letters of authority or letters of administration. This simply means the executor legally agrees to enter the probate process and oversee matters involving the estate.
In some states, the executor must also post bond. This is an insurance policy that protects beneficiaries in the event the executor intentionally or unintentionally makes a costly error during the probate process.
Identifying Assets for Probate
Once the probate process begins, the executor must identify all of the decedent’s assets and their value. This usually means diving into banking and investment account statements, tax documents and more.
Some states require executors to provide the court with a document that details the decedent’s assets, their value and notation on how that value was reached. This determines the “date of death values.”
The executor may also need to take physical possession of property such as fine art and vehicles. Moving into real estate isn’t necessary. But the executor would have to make sure property taxes, insurance and mortgage payments are properly covered throughout the probate process. The decedent’s estate can pay these and all other debts.
Contacting Creditors and Paying Off Debt
An executor must also track down any of the decedent’s last creditors. These creditors typically have a limited time in which they can make claims against the decedent’s estate. These time frames vary by state.
However, an executor can challenge these claims. The creditor may then petition the court to make a decision in the matter.
In either case, the estate must pay off official debts. These may include medical bills and other expenses the decedent couldn’t cover before death. Because these are levied against the decedent’s estate, passing away with major debt will reduce the assets that can legally transfer to heirs.
Filing the Decedent’s Final Taxes
Unfortunately, death doesn’t clean your slate with Uncle Sam. Because of this, an executor must file and pay off any of the decedent’s final taxes with estate funds.
The federal estate tax can climb to as much as 40%, and some states enforce their own as well. At the federal level, though, the 2020 estate tax only applies to estates that are worth $11.58 million or more.
Estate taxes are typically due within a year following the owner’s death. However, one can reduce the size of his or her estate during life in order to transfer property tax-free.
Distributing Property From an Estate
An executor usually needs to provide the probate court with documentation detailing every transaction he or she engaged in during the probate process thus far. These filings would also detail the exact value of the remaining estate. However, some states allow the executor to waive this requirement if all beneficiaries believe it’s not necessary.
After the court confirms all debts and taxes are complete, it can move forward with distributing what remains of the estate pursuant to the will.
If a person died without a will, the court typically divides assets and property among immediate family members. Someone who dies without a will has passed away “intestate.” The surviving spouse, if any, typically takes priority.
How to Avoid Probate
The probate process can chip away at the decedent’s estate before it is distributed to the heirs. However, there are several estate planning techniques one can engage in during life in order to shield property from the probate process.
Firstly, you can convert several of your banking accounts into “pay-on-death” accounts. You typically just need to sign a form from your financial institution and designate a beneficiary. Some states even allow you to convert security and vehicle registrations, as well as real estate deeds, into pay-on-death property.
Another major example is opening a revocable living trust. These accounts can hold virtually anything of value, including your home, cars and jewelry. When you transfer the property to the trust, it leaves your estate and is no longer your property. Thus, these assets don’t have to go through the probate process.
You can detail how you want to divide this property among heirs in your trust document. With a revocable living trust, you also designate a trustee to manage trust assets and distribute property to the proper beneficiaries after your death. Typically, you would be the trustee so you can manage the trust during your lifetime, and you would appoint a successor trustee to handle matters on your death.
In addition, you can give away property and assets as gifts during your lifetime. For 2020, you can gift up to $15,000 to any individual without worrying about the gift tax. So you can give up to $15,000 in cash or other property to each of your three children, for example. But even if you gift more than $15,000 to one person during the year, you’d generally just need to report it on Form 709. It doesn’t mean you necessarily have to pay the gift tax, but you trigger that when you breach your lifetime gift and estate tax exclusion.
Probate may sound intimidating, but it shouldn’t be a daunting process. A detailed will that designates an executor can ensure the proper transfer of your property to the right heirs after you die. The probate process isn’t always necessary, however. So it’s important to seek help from a lawyer to see how state law affects probate in your area. Seeking a financial advisor for guidance around estate planning can also protect your property from probate and taxation.
Tips on Estate Planning
- The probate process can hold up the distribution of your assets for as long as a year. With good estate planning, though, you can help your heirs avoid this delay. A financial advisor can help you plan your estate, as well as manage your wealth. To find one near you, use our advisor matching tool. It connects you with up to three local advisors, so get started now.
- A revocable living trust can help secure your property from probate, but it’s not the only kind of trust around. Look into how different trusts work to see which kind is right for you.
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