Probate is a court-supervised process to evaluate the contents of an estate and distribute them to beneficiaries. It is not necessary for the person who has died to bequeath an estate for probate to occur. In most cases, the contents of an estate are automatically transferred to probate after death, regardless of whether a will exists or not. The time and costs for probate depend on the complexity of an estate and state laws. The more complex the estate, the more expensive it is. Strategies to avoid probate include establishing a trust or using retirement accounts to transfer funds to beneficiaries.
The probate process is designed to ensure fair and legal distribution of an estate’s assets. A will or last testament is not necessarily required for probate to occur. There are various types of probate processes: formal, informal, summary and supervised. The most common type, and the one discussed here, is the formal probate process. The main actors in a probate are: State laws regarding probates vary. For example, estates below a certain amount are not subject to probate. But the figure for lack of eligibility varies. Estates that are below $50,000 do not have to undergo the probate process in New York. In California, the probate threshold is $150,000. Depending on a will’s circumstances and complexity, the time and costs associated with the probate process can vary. However, the average costs of probate are estimated to be between 3% to 7% of the estate’s total value. Included in this cost are an assortment of fees such as court fees, executor fees, attorney fees, and business valuation fees. The American Bar Association estimates that the average time for probate is between six to nine months while Estate Exec, an online software for estate management, has much longer timeframe, 16 months, for settlement of probate. Like costs, time spent on probate depends on various factors such as state probate laws and the size of an estate. Broadly, the probate process can be divided into the following four steps: By law, all heirs and beneficiaries must be informed about the application. Subsequently, a hearing is held to determine if the will is authentic. The hearing is an opportunity for parties to raise objections. Once an executor is appointed, they may have to post a bond to safeguard against errors they might make during the administration process. In the absence of a will, a petition is filed to administer the estate. The rest of the process remains the same. The idea behind the process is to calculate an estate’s true worth and it consists of identifying assets and debts for the estates. The former includes things like property, insurance, and stocks. Examples of debts are taxes, loans, and personal liabilities. Executors are required to take legal ownership of the assets and must inform creditors about the process to ensure that they can file claims for unpaid loans to the court. Taxes, personal or those from assets contained in an estate, should be paid within nine months of the estate owner’s death. If the estate does not have enough cash to cover debts, then assets from it are liquidated to pay them off. Creditor claims brought forward in the previous step are verified and, depending on the debt amount and timeframes involved, they are settled on a case-by-case basis. Creditors are given between four to six months in order to submit their claims. The executor must provide a full accounting of debt settlements in the previous step before starting distribution of the estate’s contents to beneficiaries. Considering the time and expense involved in the probate process, it is not surprising that estate planning includes strategies to avoid probate. Two of the most common ways to avoid probate are listed below: Assets placed in a trust do not have to undergo the probate process and have the added advantage of being tax-deferred for a majority of the cases. But this method is not foolproof as some trusts, such as testamentary trusts, are contained in a will. The expenses involved in maintaining a trust can also build up over time, making wills a cheaper option for those who do not have substantial assets. They are not subject to the probate process and may come with some tax benefits. The drawback to this method is that retirement accounts are constrained in the nature and type of assets they can hold. Previous laws regarding probate were cumbersome and expensive. In recent times, states have moved to simplify the process and enable quicker resolution of the process. For example, summary administration for small estates allows individuals to file affidavits laying claims to their portion of the estate. It is used for small estates that is below a certain prescribed limit specified by state laws. A summary administration can be accomplished either by filing affidavits or through court hearings.Basics of Probate
General tasks of the executors include estimating the estate’s value and administering it. In most cases, the executor is the next of kin or the decedent’s relative.
Workings of the Probate Process
Avoiding Probate
How Does Probate Work FAQs
Probate is a court-supervised process to evaluate the contents of an estate and distribute them to beneficiaries.
The American Bar Association estimates that the average time for probate is between six to nine months while Estate Exec has much longer timeframe, 16 months, for settlement of probate. Time spent on probate depends on various factors such as state probate laws and the size of an estate.
The four steps of a probate process are probate filing, estate inventory, debt payment, and estate distribution.
The average costs of probate are estimated to be between 3% to 7% of the estate’s total value.
The two main ways to sidestep the probate process are to place assets in a trust or use retirement accounts with named beneficiaries to pass on wealth.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
