What is Death Probate?

When you think about it, probate is not difficult to understand.  At your death, your assets need to be retitled and distributed to your heirs, your debts need to be paid and any loose ends need to be looked after.  You, obviously, can’t sign the deeds, write the checks or handle your business affairs.  The probate court takes over those duties.  Probate is quite simply, an orderly court procedure to change title to solely owned assets.

The probate process is a long, complicated and bureaucratic nightmare for most families.  Here are the five basic steps to settling an estate:

Step One: Filing Petition and Gathering Material

A formal written petition to the court along with a filing fee must be submitted to the court to start the probate process.  One of the probate court’s first jobs is to approve or appoint someone to handle the affairs of the estate.  This person is called the executor, administrator or personal representative depending upon the rules of the state and whether the decedent died with or without a will.

To keep things simple, we’ll call this agent of the estate a “personal representative.”  Generally, the first thing the personal representative does is hire an experienced probate attorney.  Although having an attorney is not always a legal requirement, it has become a practical necessity because probate paperwork and filing procedures can be very complex.

Step Two: Publishing Notice to Creditors

The second major job of the probate court is to order that the decedent’s creditors be notified so that they can present their claims to the court for payment.  This requires the time-consuming task of cataloguing all of the decedent’s liabilities.  The creditors are notified either by notices in the local newspaper or directly by mail.  The law sets a time that the probate proceeding must be left open to allow creditors the chance to present their claims.  In most states, the creditor period is several months long.

Step Three: Inventory and Appraise Assets

During the probate all the assets in the estate are usually frozen so that an accurate inventory and appraisal can be made.  This means that during this period none of the assets can be distributed or sold without written permission from the court.  The court will often require formal written appraisals for many items, such as real estate, antiques, collectibles, automobiles, furniture and other valuable assets.  Appraisal fees can be expensive and, like all expenses, are paid for out of the estate.

Step Four: Payment of Debts, Claims and Taxes

Once all the debts and claims have been submitted and approved, they are presented to the court for approval to pay them from the assets of the estate.  Some estates may also have death tax liability and they must stay open until those taxes are paid.

During the entire probate process, disgruntled heirs or those who disagree with the provisions in the will can bring a lawsuit in the probate court.  These suits are called will contests.  They can hold up the distribution of the estate and are often used to intimidate heirs into settling cases that have no merit.

Step Five: Final Distribution and Closing of Estate

Finally, after the court is satisfied that all legal requirements have been met, it will order all debts, claims, taxes, attorney’s fees and the personal representative’s compensation and any other miscellaneous expenses to be paid.  If there is not enough cash in the estate to pay these substantial claims, the judge can order that assets be sold at public auction or via estate sales.  These transactions are often conducted in a depressed market or under the banner of “distressed sales.”

It is only after all the bills are paid that the probate court will distribute the estate to the beneficiaries named in the will, or, if there is no will, to the designated heirs at law.  The court then closes the file.

Q: How much does Probate cost?

A: Despite what probate lawyers say, probate is very expensive.  One critic of the system says that the average cost is over seven percent of the gross value of the estate.  A full sixty percent of the costs go to lawyers and forty percent to personal representatives and others.  One legal scholar who urges a reform in the probate system remarked that, “the cost of probate expands to consume the money available.”  Small estates are particularly vulnerable because even reasonable fees can eat up a large percentage of an estate’s assets.  There just isn’t that much to go around.  Remember, every dollar that goes to pay probate costs is a dollar that could otherwise benefit your family.

Q: What are Death Probate Fees?

A: The way probate fees are calculated is exceedingly unfair to your family.  State law typically sets the probate fees that attorneys and personal representatives can charge.  Many states allow attorneys to charge any fee that the court considers reasonable, without any limitations.  Other states limit the fees to a fixed percentage of the estate.  Under either method, the fees can range from 4% to 10% of your family’s gross estate.

Remember, too, that probate fees are often levied at each spouse’s death.  Depending on how title was held on the date of death, a married couple could pay some form of probate fees on the death of each spouse.

Not only are these fees excessive, but the manner in which they arrive at the size of your estate bears little resemblance to its actual value.  In states that use the percentage of the estate method, probate fees are calculated on your estate’s gross value without deductions for liens or encumbrances.  This means that if you have property worth $100,000 but owe $90,000 to a bank or some other financial institution, your probate fees will be based on the full $100,000, not the $10,000 equity interest you actually own.  As you can see, this valuation method unfairly increases the size of your estate and results in the payment of larger fees.

Q: How long does Probate take?

A: The slow progress of your estate through probate can be very frustrating for the family.  Although this complex process usually takes at least one and a half years to complete, many estates take even longer.  Most people assume that their estates are simple and will glide through the system.  Regardless of how simple an estate appears, it’s very difficult to close a full probate in less than a year.  That’s because of all the steps that must be completed to the satisfaction of the court.

Q: Are the details of the estate kept private in Probate court?

A: No.  All probate proceedings are open to the public.  Anyone who has an interest can pull your probate file and examine the details therein.  In a supervised probate proceeding, the file will disclose an inventory and appraisal of every asset you owned at death.  It reveals the names of all your creditors and amount owed to each.  It lays out the names of all your beneficiaries and the amount and conditions of their inheritances.  This information is often compiled and sold to those who use the information to sell products and services to vulnerable surviving family members.  It can be particularly damaging if you owned a business.  Your competitors will have a treasure trove of confidential business information at their fingertips in the probate file.

Q: What happens to the real estate located in another state?

A: After death a probate must be instituted not only in the state where you lived, but also in every state where you owned real estate.  This is called an ancillary probate.  Each state has probate jurisdiction of the real property located within its borders.  That means that your family will have to file a new probate in each state and hire local counsel to represent the estate.  Of course, this will add to the expenses that must be paid before your family receives its share.

Q: Are there any other problems with a Death Probate?

A: Yes.  Perhaps the most important disadvantage of death probate is that your family loses control of the estate.  During probate, it may not be able to sell assets without court approval even if it needs the money.  Opportunities can be lost because the cumbersome probate system moves so slowly.

Your family may pay an emotional price in probate, as well.  Because the process takes so long, it can be a constant reminder of the loss of a loved one.  It can also foster arguments among family members who would normally seek support from one another.  It’s common to see family members taking out their frustration about the system on one another, especially if one of the family members has been named the personal representative of the estate.

Q: Does Joint Tenancy avoid a Death Probate?

A: Well, the answer is yes and no.  In the case of a husband and wife who own their assets in joint tenancy, there’s no death probate when the first spouse dies because title passes automatically to the surviving joint tenant.  However, when the surviving spouse dies, there will be a complete probate on the entire estate.

The fact that joint tenancy ownership avoids death probate at the first spouse’s death is a small reward for the many other disadvantages of joint tenancy ownership.  It can lead to huge unexpected liability when parents and children own assets together.  In community property states it creates capital gains tax problems.  It can create unintended beneficiaries and often causes gift and death tax problems.  For these reasons, estate planning experts agree that joint tenancy may be the poorest estate planning tool.

Q: Does a Will avoid a Death Probate?

A: No.  In fact, a Will guarantees probate.  The word probate actually comes from Latin and it means “to prove the will.”   All property that is controlled by your Will must go through the probate court.  Once your estate enters the probate process, it’s trapped in the system until the judge releases it.

Q: Does a Living Trust avoid a Death Probate?

A: Yes.  All assets transferred to a living trust completely avoid the probate process, both during your life and at your death.  Living trusts are not new.  They’ve been successfully used in one form of another since the Middle Ages.  Both then and now, the living trust has required that the owner of assets transfer title from his or her name to the name of the trust.  This means really changing the title to your property.  For real property, it means you will sign a new deed.  For other assets, you sign special transfer documents changing ownership to the name of your trust.  Once the process is complete, all your assets will be owned by the trust.

Almost nothing will be owned by you personally.  Your living trust has title to the assets, but don’t worry because you have complete control of the trust while you are alive.  You can amend the trust or even revoke it whenever you like.  When you die, there are no assets in your name, so there’s no need to go through probate.  The trust contains your written instructions and will direct your hand-picked agent, the successor trustee, to distribute your estate.

With a living trust, there is no need for “help” from the probate court or probate lawyers.  Your trust will completely eliminate these unnecessary costs.  Moreover, your estate can be distributed shortly after your death.  There are no judges to consult or bureaucrats to please.  Your trustee merely follows your instructions in distributing your estate according to your wishes