What’s Probate? And How Can You Avoid It? - Part One
You may think that after you die, everything you own will simply go to your spouse, children, or closest family members. But, it’s not that simple.
With a few exceptions, when you pass away your assets will go through probate, a court process by which assets are transferred to a deceased person’s heirs and their creditors are paid.
Like most court proceedings, probate can be time-consuming, costly, and open to the public, and because of this, avoiding probate—and keeping your family out of court—is a central goal of most estate plans.
During probate, the court supervises a number of different legal actions, all of which are aimed at finalizing your affairs and settling your estate. Although we’ll discuss them more in-depth below, 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 & paying your creditors;
Filing & paying your taxes; and
Distributing your assets to the appropriate beneficiaries.
In this two-part series, we’ll first explain how the probate process works, and then we’ll outline the ways you can avoid probate (if that is indeed your goal) through thoughtful planning.
WHEN PROBATE IS REQUIRED
When Your Estate Plan Only Includes a Will
As mentioned, if you haven’t created an estate plan with probate avoidance mechanisms in place, your assets must go through probate before they can be distributed to your heirs. It’s important to note that even if you have a will in place, your loved ones will still be required to go through probate upon your death. So, if you want to keep your family out of court and out of conflict when you die, you’ll need to implement additional estate planning vehicles, which we will cover in further detail later.
When You Die Without A Will
If you die without a will, it’s known as dying intestate, and in such cases probate is still required to pay your debts and distribute your assets. Yet, 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.
When Your Estate Has a Relatively Small Monetary Value
Some states allow estates with a relatively low value to bypass probate and use an abbreviated process to settle the estate. For example, Maryland law allows estates with a total value of less than $50,000 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
How probate plays out is largely determined by whether you had a valid will in place at the time of death. However, once the court appoints someone to oversee the probate process on your behalf, the process unfolds in a nearly identical manner, regardless of whether you had a will.
01 | 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.
Your executor is required to ensure that your mortgage, homeowners insurance, and property taxes are paid while probate is ongoing. These and all other debts can be paid from your estate.
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.
02 | AUTHENTICATING THE VALIDITY OF YOUR WILL:
After your executor is appointed and your will and death certificate are filed, probate officially begins. From there, the court must authenticate your will to ensure it was properly created and executed in accordance with state law. 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, and/or notarized) as required by state law, or someone might 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.
03 | LOCATING & VALUING YOUR ASSETS:
After the will has been authenticated and notice given, the executor must identify, locate, and take possession of all of your assets, so they can be appraised 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.
Any assets the executor is unable to locate will end up in your state’s Department of Unclaimed Property. Fortunately, this is easy to prevent when you work with us. As your trusted legal advisor, we will not only help you create a comprehensive asset inventory, we will make sure this inventory stays updated throughout your lifetime.
Once all of your assets have been located, the executor must determine their value using financial statements and/or appraisals. From there, the combined value of all of your assets is used to estimate the total value of your estate.
04 | NOTIFYING & 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 of time—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.
05 | FILING & 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. Any taxes due are paid from estate funds. In some cases, this may require liquidating assets to raise the needed cash.
06 | DISTRIBUTION OF YOUR REMAINING ASSETS:
Once the court confirms all of your debts and taxes have been paid—which typically requires the executor to file an accounting of all transactions he or she engaged in during the probate process—the executor can petition the court for authorization to distribute the remaining assets in your estate to the beneficiaries named in your will, or according to state intestate succession laws, if you didn’t have a will.
Once all assets have been distributed, the executor must file a petition with the court to close probate. 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 COURT & OUT OF CONFLICT
As you’ve learned, depending on the value and complexity of an estate, the probate process can be quite daunting and lengthy. By implementing the appropriate estate planning strategies, however, you can help your loved ones avoid probate all together—or at least make the process extremely simple for them. We’ll take a look at these strategies next week in part two of this series.
Until then, if you have any questions about probate and/or how to avoid it, contact us. We’d be honored to help.
This article is a service of Cedar Counsel. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.