Probate is the court procedure that allows for the administration of an estate. During the probate process, the court oversees the different tasks involved with managing the assets of the deceased. These tasks include: identifying property, paying any debts or taxes, identifying proper heirs, and distributing property to those heirs.
A personal representative, generally a relative or friend, completes most of the work with the assistance of an attorney. An accountant and appraiser often support the personal representative as well. Sometimes the court appoints the administrator of an estate.
Not all of a deceased’s property is subject to the probate process. Some assets pass directly to a beneficiary, without any court involvement. These assets include: life insurance that names a beneficiary, retirement accounts, annuities, bank accounts with a payable on death designation, securities, property in trust, and joint tenancy property. Although these assets bypass the probate process, they may still be counted for the taxable estate calculation.
Probate is initiated when the court appoints a personal representative, typically the person named in your will. A “Notice to Creditors” is then published in a local newspaper to alert unknown creditors that they have a certain period of time to file claims against the estate.
While the personal representative inventorying the assets and conducting business on behalf of the estate, he or she must keep good records. Income collected, payments made, and assets distributed all need to be accounted for. After the credit claim period ends, and debts have been paid, the personal representative can apply for court approval to distribute the remaining assets to beneficiaries. Finally, the personal representative is responsible for paying taxes out of the estate.
Probate offers some important benefits. Principally, it provides protection by having court supervision over the deceased’s property. Once the probate creditor’s claim period expires, it is very difficult for creditors to claim any interest in the estate. Probate may also bar later lawsuits that would otherwise be difficult to defend without the help of the deceased. This is useful for professionals who are subject to malpractice — doctors, accountants, and attorneys.
Probate has several drawbacks, which is why some seek to avoid it. Probate can take six months to a year. Sometimes, probate can drag on for several years, or in extraordinarily rare situations, for decades. Probate can be expensive due to professional and personal representative fees. If you want to avoid probate, you should contact your Matrium Law Group lawyer to discuss estate planning probate avoidance techniques.
A revocable living trust is an important tool to avoid probate. With this type of trust you may, at any time, take property out of the trust or revoke the trust entirely. During your lifetime, a revocable trust is treated as a fictional entity. You pay taxes on any trust income during your lifetime, and your creditors may access trust assets to pay your debts.
Upon your death, the trust becomes an irrevocable trust and takes on new life as a separate legal entity. Any property in the trust not owned by you or your estate at the time of your death is not subject to probate.