What is Probate? Understanding Estate Planning

What is Probate and How Does It Affect a Deceased Person’s Assets?

Probate is the Legal Process of Distributing a Deceased Person’s Assets to any Beneficiaries, Heirs, or Creditors.

What is probate, and what happens to a person’s assets when they die? Upon death a deceased person’s assets become what is known as their estate. The deceased person may also be referred to as the decedent after their passing. Every state has some form of probate court that governs the probate process. This includes matters relating to wills, trusts, and estate planning, as well as any disputes that may arise out of the probate process.

Is a Will Necessary for Probate?

No, probate can take place whether the deceased person left a will or not. In some states the lack of a will could necessitate probate.

The individual who makes the will is known as the testator. After they pass away, they may be referred to as the decedent. If they did not make a will. they are considered to have died intestate.

How does probate work if there is a will? The will names the beneficiaries of the estate who are entitled to receive a share of the deceased person’s assets. The will typically also names an executor for the estate who serves as the personal representative of the estate and is responsible for ensuring that the decedent’s assets are properly distributed under probate. If the named executor is unwilling or unable to carry out the necessary functions of the probate process the probate court will appoint an administrator to oversee the distribution of the deceased person’s assets. In most cases this would be a close family member such as an adult child or surviving spouse. A will can also name a guardian to oversee a minor’s share of the estate if there is not a surviving spouse or parent available to do so.

Consulting an attorney experienced with estate planning to have a will created can be an important step in making sure that the will carries out the wishes of the testator and that it is found to be valid once probate begins.

How does probate work if there is not a will? If the decedent did not leave a will and is considered having died intestate, a probate court will determine the rightful heirs to the deceased person’s estate according to state law. The probate court will also appoint an administrator to oversee the distribution of the decedent’s assets, again this would most likely be a close family member

The executor or administrator is entitled to a fee for their probate services, which is usually a small percentage of the estate’s value. The amount may be specified in the will or could also be determined by a state probate law.

The Role of the Executor in Probate

Affirming the Will

The executor or appointed administrator, either of whom can be considered the representative of the estate, goes before the probate court to present the testator’s death certificate and present the will in order to have it affirmed. The probate court needs to determine that the testator was of sound mind when the will was executed and that the will was properly witnessed, signed, and that there are no other wills drawn by the testator that would present a conflict with the will being presented for probate. In some cases the executor may retain a lawyer for assistance with the probate process and administration of the estate.

Locating Beneficiaries and Creditors

The estate’s representative is also responsible for locating and contacting the beneficiaries named in the will to inform them of the decedent’s passing. The representative is also required to locate any creditors of the deceased individual.

Determining Assets

To determine the assets of the estate, the representative needs to locate any bank accounts, stocks and bonds, retirement accounts, or other financial assets that were owned by the decedent. As a legally appointed representative, the executor or administrator is granted access to these accounts for the purpose of distributing them to the beneficiaries, heirs, and creditors of the deceased person. The representative also needs to locate and list the value of any real estate or personal properties that belonged to the decedent. Additionally, any intellectual property such as trademarks, copyrights, and patents become part of the estate if they are not otherwise devised. In some cases, the representative may need to conduct a title search for the deceased person’s financial assets as well the decedent’s real estate, automobiles, jewelry, heirlooms, or any other items of value, appraised. Each state may also have different methods for calculating the value of an estate and for determining which assets and properties comprise the estate.

Determining Debts and Liabilities

The representative will need to contact any known creditors of the decedent so that they can claim their debts from the estate once probate begins. They may include, but are not limited to, holders of mortgages or leases, car loans, and student loans, along with any homeowners insurance, renters insurance, or car insurance policies. Other debts could exist for credit cards, medical bills, or utilities. Along with informing the known creditors of the decedent’s passing, the estate representative must also publish public notice of the decedent’s passing. This is often published in a local newspaper. This is so that any creditors unknown to the representative have an opportunity to make a claim against the estate during the probate process. There is generally a one-year statute of limitations in which a creditor not directly notified by the executor can make a claim against the estate during the probate process.

Distribution of the Estate Under Probate

According to Probate Law, Creditors Are Paid First, The Remainder is Paid to the Heirs and Beneficiaries

Debts Owed to Creditors

Once the assets and liabilities of the estate are determined, probate law requires the executor or administrator to first pay off the estate’s creditors. The representative must file a final tax return for the deceased individual and possibly a tax return for the previous year if one had not been filed. Any taxes owed by the estate must be paid to the federal or state authorities before any other entity. Under probate law, the representative has the authority to sell or liquidate any of the decedent’s assets if doing so would be necessary to pay creditors who have made a claim against the estate. Funeral expenses are often paid out of the estate unless other arrangements have been made.

It should also be noted that federal and state taxes, known as estate taxes can be imposed on the estate. There are however limits on how these taxes can be applied. Both federal and state tax law allow a certain amount of the estate to pass to heirs and beneficiaries before taxes are applied to the estate. A small number state governments can also require the payment of an inheritance tax. Unlike the estate tax which applies to the estate before distribution to heirs and beneficiaries, the inheritance tax is applied to the individuals who receive the proceeds of an estate. These tax rates vary by state, in some cases the inheritance tax may apply instead of the estate tax, and at least one state charges both, and some states do not require the payment of estate or inheritance taxes. As with the estate taxes, some states that charge an inheritance tax set a limit allowing a certain amount of the estate to pass without being taxed

After all debts owed by the decedent are paid, the remaining property and monies are paid to the heirs of beneficiaries of the estate

Distribution to Heirs and Beneficiaries

If distribution is under a will, it may specify certain amounts or percentages of liquid assets, property, and intellectual property be given to a particular beneficiary. In other cases, the will might call for the remaining amount to be shared evenly among the beneficiaries. In many states there may be probate laws that require a share of a decedent’s estate be paid to a spouse or child who has not been named, or has been excluded from the will. This is known as a statutory or elective share. In such cases the excluded individual may choose to challenge the will in order to receive their share.

If there is not a will or if a will is found to be invalid, the deceased person’s assets will be distributed to their heirs according to state probate law. A representative will still be appointed to administer the distribution of the estate. The distribution of assets will typically go to the surviving spouse and children of the decedent. If there are no living heirs, then any remaining assets will go to the state.

Distribution of Assets Outside of Probate

Through Estate Planning the many of the decedent’s assets can be kept apart from the estate and pass directly to their heirs without being subject to probate. This is usually to the advantage of the decedent’s heirs. By minimizing assets in the estate, probate can be less costly and time consuming and even more importantly, allow for assets to pass directly to a decedent’s heirs without being subject to the claims of the estate’s creditors. A qualified attorney who specializes in estate planning can be helpful in figuring out which options would be most effective based on an individual’s circumstances.

Can Probate Be Avoided Altogether?

Individual state laws define how much and which types of property can pass directly to heirs and beneficiaries

Each state establishes a maximum estate limit that allows a decedent’s assets to pass directly to their heirs and either avoid probate or have the estate be administered through a simplified probate process. If the value is determined to be above the limit, then the estate must go through probate, but if under that amount, probate can be avoided. The simplified probate process, sometimes known as summary administration, allows the assets of an estate to pass to the decedent’s heirs or beneficiaries after a few months so that creditors have an opportunity to make claims against the estate. In some states if real property is involved, the estate must go through probate regardless of the value. While it may not always be possible to avoid probate, it is possible to minimize the amount of the estate that is subject to the probate process.

Protecting assets for your family

Living Trust - Assets such as real property, cars, financial accounts, and intellectual property can be transferred into a living trust. The assets are held by a trustee who is responsible for maintaining the assets under the terms of the trust and transferring the assets to specified beneficiaries upon the passing of the decedent, thereby avoiding probate.

Joint Ownership - Many of the assets and properties that can be placed in a living trust can alternatively be placed under joint ownership so that if one owner dies, the assets or properties would pass directly to the other owner without going through probate.

Account Beneficiaries - Probate can also be avoided by designating financial assets such as checking and savings accounts, certificates of deposit, and retirement accounts such as I.R.As or 401Ks, to be payable to a chosen beneficiary upon the account holder’s passing. In most states, stocks, bonds, and brokerage or trading accounts, can also be payable to a beneficiary upon death.

Insurance Policies - Life insurance policies are designed to skip the probate process by being payable directly to a beneficiary upon the policy holder’s passing. A life insurance policy can be used to cover a funeral, but separate insurance policies can also be taken out to cover funeral expenses.

Transfer of Assets Prior to Death - Another option for avoiding or minimizing probate would be the transfer of assets prior to death. Doing so not only minimizes or eliminates the probate process, but can also help to reduce or avoid federal and state estate or inheritance taxes.

With all of the available options, which ones are best for my family?

Planning and Representation

Every family has their own needs and their own set of circumstances so figuring out the best plan for your family’s future can be complicated. Asking the question, “what is probate?” now can save your family money, time, and peace of mind. Our estate planning services can help you minimize or even avoid probate. Our attorneys will make sure that you understand all of the available options and what works best for you and your loved ones. If you do find yourself facing the probate process, whether simple or complex, having an experienced and knowledgeable attorney can be essential to protecting your family’s assets. Our Head Probate Attorney, Amanda Jelks, is experienced with probate court and can help you navigate the entire process. With proper planning and representation, you can protect your family’s assets and financial security.