The Probate Process

After a person's death, a court proceeding may be held. This process is called probate. The following includes what to expect in probate court and ways to avoid probate altogether.

Going to Probate Court

The legal representative may be the person responsible for settling a person's estate. The executor asks the probate court to recognize the will and authorize the executor to administer the estate according to the will's terms. If there is not a will, this will be according to intestate succession laws of the state.
With the authority of the probate court, the executor will pay all the bills, taxes and legitimate claims made against the estate. He or she will also challenge claims that are not valid.

The executor then distributes the remaining assets to the beneficiaries in accordance with the will or the heirs as determined by state statute if there is no will. After performing these duties, the court will release the executor from any further duties and then close the estate.

When the will is probated, witnesses will be called to court to testify that the signatures on the will are theirs as well as the signature of the deceased.
This process can be eliminated by executing a self-proving affidavit at the same time the will is executed. This affidavit takes the place of a court appearance by the witnesses. To make a self-proving affidavit valid, it must be signed and witnessed by a notary public or some other person authorized under state law to administer oaths.

In recent years, there has been controversy about the expense and time involved in the probate process. Probate can take anywhere from several months to more than a year, and costs can be as much as 5 percent of the value of your estate. In response to these concerns, many states have taken steps to simplify probate procedures. If the estate is very small, it may be able to avoid probate entirely.

Avoiding Probate

In addition to bypassing probate due to a small estate, there are other methods that people use to transfer property at the time of death:

• One of the most common methods is joint tenancy with right of survivorship, which occurs when one of the owners of property held in joint tenancy dies. The property then automatically transfers and belongs to the surviving joint owner. While this method can be an effective way to pass along property ownership, it can have its drawbacks: while the person is alive, he or she can lose property to the creditors of the joint tenant. Also, giving someone a joint tenancy in property that was previously owned by the estate holder can incur gift taxes.
• Another way to transfer property to another while the person is alive is by making gifts. Under federal law, as of 2018, it is possible to give as much as $15,000 annually to anyone without incurring any tax liability, and if married, one's spouse may do so as well. It is also possible to give away as much as $5.6 million in this manner without triggering any gift tax reporting requirements. However, making an outright gift means there is no way to control the property once it has been given, so if there is any concern about the recipient's ability to handle money, this tactic may not be the best choice.
• To avoid probate for specific assets, including proceeds from life insurance policies, pension and IRA benefits, name a specific beneficiary. It is even possible to name a contingent beneficiary. This can eliminate property going into your probate estate if the first beneficiary dies first or within a short period of time after the estate holder's death.
• Escape estate taxes by transferring ownership of the life insurance policies to the beneficiary or by creating a life insurance trust. However, it is still possible to face the prospect of paying gift taxes if the person is making the premium payments, even when the amount of the premiums falls below the normal $15,000 annual exclusion (starting in 2018). In some cases, the IRS has included life insurance policies as part of the deceased's estate even when he or she tried to give the policy to the beneficiary, but retained what are called incidences of ownership, such as the right to change premium payments or borrow against the policy.
• Another very simple way to avoid probate is to open a kind of bank account known as a Totten Trust: the account is in the person's own name, but the estate holder is designated as the trustee for the beneficiary. When the estate holder dies, the beneficiary receives the money in the account. These accounts, also known as POD accounts (pay on death), differ from other kinds of trusts because the estate holder gets total control over the money in the account while he or she is still alive. Money can be added and it is possible to make withdrawals or even close the account without having to worry about the beneficiary making a claim that breached the holder's duty as trustee.

Important Notes

• Note that the tax issues addressed in this article are primarily federal. Remember that laws change, and some states also have their own inheritance taxes.
• Forming a revocable living trust may help you to avoid probate.
• If an individual dies with a will, the will would have named an executor to handle the probate process. If an individual dies without a will (called an “intestate”), the administrator will likely be a next of kin who will open the probate estate.
• Remember that state laws vary and some states will require the legal representative to hire an attorney.
• Note that the small estate process varies from state to state. However, keep the following general requirements in mind: 
  • The value of the estate must be under a certain amount.
  • All creditors must be paid.
  • A certain amount of time has had to have passed since the death. 
  • Forms are generally available online.

Resources

• American Bar Association: www.americanbar.org
• United States Courts: www.uscourts.gov
  Federal Deposit Insurance Corporation: www.fdic.gov
• Social Security Administration: www.ssa.gov

©2024 ComPsych ® Corporation. All rights reserved. This information is for educational purposes only. It is always important to consult with the appropriate professional on financial, medical, legal, behavioral or other issues. As you read this information, it is your responsibility to make sure that the facts and ideas apply to your situation.