What is Probate?
The Word probate means to prove. It is a general name or term used to include all matters over which a probate court has jurisdiction. This includes the traditional proof of wills, the disposition of estates the appointment of guardians and conservators, changing a person’s name, and other matters. Probate is a problem every family faces at one point or another and it consumes a huge amount of money. The sad part is that most of the probate system would be unnecessary if people would just do a little planning.
An American family will be exposed to the probate court when (1) a family member dies, (2) a family member becomes incompetent, or (3) a minor child inherits property.
A Last Will and Testament Isn’t Going to Avoid Probate
Since the estate tax limits have climbed, the trends to get everybody into a revocable living trust have slowed. The revocable living trust has also lost popularity, because a lot of lawyers are arguing that all you need is a last will and testament.
The lawyers say, “avoiding probate isn’t a big deal.” In many states new laws have been passed that make it a lot easier to probate an estate. Unfortunately, a lot of lawyers haven’t gotten the memo.
The death of a family member is a time of severe grief in a family, and it is easy to take advantage of the family at that moment. A lot of lawyers tend to take advantage of their grieving clients at the time they are most vulnerable.
(It’s really sad that 95% of the lawyers give the other 5% of us such a bad reputation.)
Avoid Probate and Save Money
Probate is expensive. It is basically money that the family didn’t have to spend, but mom or dad thought they would be smart and save a lot of money by just getting a free example of a will off the Internet. They were penny wise and pound foolish.
The example of a will they got may have actually been a great last will and testament, but no matter how good the example of a will is, it will not avoid probate. Probate is the court process that gives the will its “power.”
Probate is expensive for you. Probate is big business for lawyers. Go to any county courthouse in the nation, and there will be an entire section of the courthouse set aside for probate. The probate courts are a major part of the judicial system in the United States.
The fact that probate is the only part of the judicial system that has its own court system in every county in the United States should tell you something. It takes a lot of money to run those courts. Probate isn’t cheap, so let’s just avoid probate all together.
Avoid Probate to Save Time and Frustration
The frustration of probate is huge. Some years ago in our area a family literally killed each other over the probate process. It drove them insane. This isn’t some story off the news. I grew up three houses away form them. I knew them all for 30 years.
There really aren’t any published statistics on the length of time it takes to probate an estate, but it is somewhere on the average of about a year or a year and a half. It will take the person named as the executor or executrix (personal representative) hundreds of hours to clean up the estate.
The other family members will become frustrated, because they want their share of the estate. Some kids can’t wait to spend their inheritance. Stupid, but true. They will start to harass the personal representative. The longer it goes, the more tension there is in the family.
Avoiding Probate Isn’t Always the Best Course
There are actually reasons you want to take Dad’s estate through a probate process, but most families should just avoid probate any way they can. If you do want to probate Dad’s estate, note that you don’t have to probate all of the assets. Use a rifle approach, not a shotgun approach.
Probate is a legal tool. Just like any tool, you had better know how to use it or it will hurt you. I have developed materials to lead you step by step through the whole estate planning process, but if you’re only looking to learn about avoiding probate. If you decide you want a complete estate planning guide, you can request a copy of my book, Protecting Your Financial Future.
The biggest problem is you can’t blindly trust your lawyer to do everything for you. If you walk in off the street to get a “last will and testament” and say, “Hi Mr. Lawyer. Here I am. Set me up,” your lawyer is going to do exactly what you just asked him to do. He will set you up. Avoid the “set up” and avoid probate, just know what you’re doing, and it’s easy.
Lee R. Phillips
Probate
Probate is the legal process of proving a will and wrapping up a deceased person’s affairs here on earth. It is the orderly way society has chosen to clear titles and move property after someone has died. The problem with the process is that the legal system moves real real slow, and the attorney’s clock runs fast. There really aren’t a lot of statistics, but on a national average, you are looking at about 3% of the gross value of the probatable estate. It will take an average of about 1.5 years to work your way through the process. Of course, I am sure you know families that have spent years in probate and seen their loved one’s estate dwindle to nothing as the system nibbled away at it.
There is a hidden toll that probate takes on a family. The emotional drain can’t be quantified, but it can be huge. In Protecting Your Financial Future, I tell the following story:
It happened in our neighborhood, not in the next town or in the next state. It was just down the street, only a few houses. One brother was extremely frustrated over the probate process. He didn’t like his two brothers acting as personal representatives, and he felt he could do a better job. He didn’t like the way the house was being disposed of. He called a family meeting to discuss the whole mess. The probate had eaten him up. At the family meeting, he pulled a gun and killed all of his brothers. A man I had known for years–my friend–was dead. And, his brother was a fugitive mass murderer, who later committed suicide during a police chase. I have watched my friend’s widow living and struggling alone for the past 15 years. How did probate affect her?
Don’t tell me probate isn’t a big deal.
To start the probate process, the family has to come up with Dad’s will. Usually, there is only one will, but you still have to follow the process which slowly grinds forward. The will has to be filed with the court, and the procedures have to be followed to “smoke out” any other wills that might be hiding out there. Once the will is accepted by the court, the court will appoint a personal representative. “Personal representative” is the new enlightened term for the executor or executrix who represents the family before the court. Of course, the personal representative has to have a lawyer by his or her side to interface with the court and make sure all of the procedures are followed to the letter.
Once the will is “proved,” the process of “smoking out” creditors has to move forward. Everybody has to be notified that Dad’s estate is in probate. You may have to publish in the newspapers to give notice of the probate to anyone who you can’t contact directly or who you may not know about. This process protects all of the creditors, so they get a final shot at Dad’s money. Actually, it also protects the family. Once the time period for the creditors to make their claims has passed, they can’t come against Dad’s estate or the heirs. This is a great tool, if Dad really does owe lots of people money. It puts an end to the creditors trying to collect. It also puts an end to the lawsuits and liabilities. After the probate is completed, nobody can come back and sue the estate.
Note that I use the term “probatable” estate. There are lots of parts of an estate that don’t have to be probated. For example, property the deceased owned as a joint tenant with someone else doesn’t have to be probated. POD (pay on death) accounts at the bank don’t have to be probated. Life insurance policies are contracts that define what the other party (life insurance company) is supposed to do after the death. IRAs are actually trusts, and they name beneficiaries, so they don’t have to be probated. Retirement accounts name beneficiaries, and they don’t have to be probated.
Looking at it another way, probate is the process that gives someone the authority to sign Dad’s name after he is dead. In order to sell the house, sell the car, get into the safe deposit box, write checks, sell the stocks, and do lots of other things, Dad has to sign his name. If Dad is dead, how does the bank know who has authority to sign his name and get into the safe deposit box or write the checks? If you show up at the bank with Dad’s will and death certificate, the bank still won’t take your word for it and let you into the accounts. Dad may have made out a will after the one you’re trying to show them. If they let you into Dad’s accounts, and there is another will, they could be paying money out twice, and banks don’t do that. They will only let you in when they get the court order (probate order) telling them that you are the guy and can sign on Dad’s accounts. The title company won’t issue a title policy to the buyer of Dad’s house until they get the court order. Can you see how it works, and why they will only rely on the court’s clearance?
What you need to know is how to avoid probate. Let’s just get to the point. Use a living revocable trust. There are lots of things people do to avoid probate, but they don’t work. People use joint tenancy, but joint tenancy only postpones probate. It is a tax disaster. It opens up huge asset protection exposures. Don’t do it. Don’t do the “dresser drawer deeds.” Dad makes out a deed and puts it in the top drawer. The kids go get the deed after Dad dies and then record it. It won’t work. You’re messing up the title, and it is also a tax disaster. Don’t fall victim to schemes. Use the living revocable trust.
Protecting Your Financial Future goes through the trusts in detail. Imagine knowing how to use your trust so it does everything it is supposed to do for you. On the order of 90% of people who get a living revocable trust do not–DO NOT–avoid probate. That’s not because the trust doesn’t work, but because they didn’t learn how to use the trust. Most people think they know how to use the trusts, but they don’t. My father-in-law is one of them. He paid the big bucks for a living revocable trust (about $8,500 in today’s dollars). But when I looked at it several years later, after I got out of law school and started studying trusts, the trust would not have helped him avoid probate. He hadn’t used it properly. Oh, he argued with me, saying that the attorney had taught him everything he needed to know. I am here to tell you, the lawyers never give enough, if any, training on using the trusts. It is a conflict of interest (for them). If they don’t teach you, then they get the big bucks for setting up the trust, and they get all of the probate too. You have to understand why the trust avoids probate and how to use it. Protecting Your Financial Future will give you all the hidden details and strategies you need to know, whether you use and attorney or do it yourself. Once you understand, then you will have the power to avoid probate.
