What is Probate?

"If you have not created a will or living trust, or need to update your will
or living trust but haven't...then you need to read the Estate Planning Organizer."

The purpose of probate is to establish clear title or ownership to your assets after your death. Before your estate can go to your children the probate court has to determine and settle your debts, establish clear title to everything you own and then distribute the estate according to your will or to the "intestate succession" statutes in your state.

You may be wondering why your assets would have to go through probate even though you established a will. The reason is simple. If your name is on the title of an asset and you die, probate is the legal way to take your name off the title and put the new owner's name on it.

Does every estate have to go through probate?
The size of the estate determines whether it will be probated. In most states if real property (land, or home) exceed $20,000 or if the total estate including personal effects exceed $20,000 to $100,000 the estate will go through probate. If your estate is under the allowed limit, a simple affidavit procedure may be substituted for the lengthy and costly probate process. However, since most people have a home or land valued over $20,000, few people are spared from the probate process.

Do all assets have to go through probate?
Not everything you own will automatically have to go through probate. For example, a jointly owned asset that transfers to the surviving spouse will generally avoid probate while the spouse is alive. However, after the second spouse's death the asset may have to go through a probate process. Also, assets with named beneficiaries such as insurance policies, IRA's and annuities, these assets will avoid probate as long as the beneficiary is alive.

Assets owned individually by decedent. Decedent's share of assets owned as tenant in common. Life Insurance, annuities, and retirement assets WITHOUT beneficiary designations. Life Insurance, annuities, and retirement assets if the estate is the named beneficiary or if the estate receives the assets because the named beneficiaries are deceased.		Assets owned jointly with right of survivorship. Life Insurance, annuities, and retirement assets with valid beneficiary designations other than the estate. Bank accounts and other assets with "pay on death" or trust designations. Securities or security accounts to be "transferred on death." Assets in trust if instrument includes a plan for distribution after death.

After your death, your family will not be notified to attend a probate proceeding. Rather they will simply have to figure it out by themselves. For example, when they try to transfer an asset into their name, they will find that they have no right to do so and will be instructed to hire an attorney for probate. The probate procedure will vary slightly from state to state but the traditional probate proceedings will include the following steps:

1. Reading of the will: Once you die, the court will read your will. If you did not establish a will they will have to settle the estate according to your state's intestate succession statues. During this proceeding they will determine if you were competent at the time you created your will
   
2. Hire an Attorney: Generally an attorney may be named in the will, otherwise the family would need to hire one. In some states attorneys are allowed to charge a percentage of the estate; in other states, they are limited to flat or hourly rates. A percentage can be between .005% to .04% and an hourly rate can be $75-$250/hour.
   
3. Petition the court for probate: This proceedure will establish an executor, usually a child to represent your estate. Obtain proof of heirship, locate witnesses and file oaths.
   
4. Assemble inventory and appraise your estate: Send notice to all banks, insurance, business interests and examine all of your books and files. Most assets cannot be sold or distributed until probate is complete.
   
5. Administration of the will: This action will follow the guidlines of your will.
   
6. Filing of tax returns.
   
7. Settling claims.
   
8. Final distribution of estate.

Cost:
Two nation wide studies showed an average of 4-10% of the gross estate is lost in probate. This is before any liabilities (such as mortgage or other debts are subtracted). There are two kinds of fees that you can expect to pay: statutory and extraordinary fees. Statutory fees are established fees by a state legislature. Extraordinary fees are those charged by an attorney for additional services.

To find the reality of your estate, be conservative if you like. Add up your gross estate before mortgage and debts. example:

$150,000 house
$ 25,000 cars
$ 75,000 personal property items
$300,000 stocks and cash funds
$550,000 total

Probate may take between $22,000(4%) to $55,000 (10%)

Length of probate:
Many individuals assume that they have a simple estate and do not have to worry about a long probate process. This misconception is very common. For most estates probate lasts between 6 months to two years. In many cases it can go to three or four years. Regardless of how simple an estate appears to be, it is rare to see an estate go through probate in less than 6 months.

Lack of privacy
All probate transactions are a matter of public record. Anyone can find out the size, contents, and beneficiaries of your estate. This can be embarrassing and frustrating for your family, create disputes, and expose your family to unscrupulous solicitors.

Loss of control
The probate court controls the entire process. Someone "on the outside" will tell your beneficiaries who gets what and when.

Where is probate held:
A probate proceeding will be held in each state and county where you hold property. If you own property in more than one state or county, a Living Trust will avoid the agony and cost of commuting and administering two proceedings.

My parent's estate did not go through probate:
Many individuals claim that since their parents did not go through probate neither will they. In many cases we find that the parents had less than $10,000 to $60,000 in their estate and they simply had to file an affidavit. Otherwise, probate can be delayed through methods such as joint tenancy, but it will eventually happen. You can count on it!

Who will be responsible to take my estate through probate after I die:
There is no watch dog. A simple answer to that question is that no one will tell your children to go through probate, they simply will have no choice. Once you pass away, they will not be able to transfer title or clear accounts without a probate approval.

Bottom Line:
A Living Trust is a way to protect your family from the costs and time lost in probate, not to mention the stress. Probate is time consuming, inconvenient and expensive. Even at best, probate is an unpleasant, emotionally trying experience. At worst, it can be a nightmare.

NEXT: How do Estate Taxes Affect My Family and Me?