Everybody thinks probate is a big bad monster that gobbles up families. Well, it isn’t really that bad, but it has been known to be a real nightmare for some families. The word probate in Old English simply means “to prove”. In American law, probate now describes matters over which a probate court has jurisdiction. This includes traditional proof of Wills, the disposition of estates, the appointment of guardians and conservators, and other matters.
An American family will usually be exposed to the probate court when:
- A family member dies
- A family member becomes incompetent
- A minor child inherits property
In short, the probate system is meant to protect family members and creditors to assure that everyone gets his fair share of the property left behind. The probate court sees to it that the bills are paid, the property is “legally” transferred to its proper new owner, that the children are placed in new homes, and the children’s financial affairs are safeguarded.
All this is good, but 85% of it is unnecessary when you do your planning ahead of time and use a Revocable Living Trust. In the Accumulation and Preservation of Wealth System, you will have the tools necessary to let you decide who raises your minor children and how your property is divided.
Difference Between Probate and Estate Taxes
Some people confuse probate and estate taxes. They may have even been told by their attorney that their estate was too small to worry about. What the attorney was probably referring to was the estate was too small to have to worry about paying estate taxes. It’s true that (as of 2006), estates with a value less than $1.5 Million will not pay any federal estate taxes. (In 2016, it is about $5.45 million.) The IRS calls this the exemption equivalent.
But probate has nothing to do with property value and taxes, and it has everything to do with ownership of property. Its primary purpose is to transfer the property from the deceased person to the rightful owner. This includes all property that must have the deceased person’s signature or rightful permission to transfer ownership. Think of things such as real estate, stocks, automobiles, and bank accounts. If the person owning such property is deceased, then there must be a court order issued (using the probate process) before the property can be transferred to the rightful heirs.
But I Have A Will. Will My Estate Be Probated?
A Will alone cannot prevent an estate from going through the probate process. In fact, a Will doesn’t have any “legal teeth” until it has gone through the probate process. The probate court must validate the Will and empower the personal representative with authority to deal with the banks, stock broker, real estate agents, and everyone else that has an interest in the estate. The probate process itself is the same whether there is a Will or not, but if you don’t have a Will, the court acts on the state’s instructions instead of yours.
Can Joint Ownership Prevent Probate?
Yes, it can. But it also opens up a host of other tax and legal problems. Find out more in our Joint Tenancy section.
The Impact of Probate
While some attorneys may feel that probate is no big deal, there are many substantial ‘impacts’ that probate may have:
Confused clients are usually at their attorney’s mercy when it comes to the probate process. Although the proceedings are usually legally fairly simple, an attorney can rack up bills totaling thousands of dollars. And that is just for the simpler cases. When there are real questions on creditors, legal liability, or rightful heirs, probate can consume a large part of the estate. In general, probate usually takes between 1 year and 2 years, and costs thousands of dollars or more depending on the size of the estate.Given proper education, bulletproof plain-English estate planning documents, and legal support, you can skip the professional legal expenses, or at least learn to control them.Probate Hampers Asset Management
When assets are caught in the probate process, the can be a real financial loss. When the personal representative is unable to sell items such as stocks on their way down, or real-estate that is depreciating, it may force them to cash out other assets in order to continue paying for the probate process. Being forced to liquidate estate assets almost always costs the estate. For example, certificates of deposit may have to be cashed early, which will result in a penalty and loss of money.Probate Takes A Lot of Time
Probate can eat up a bunch of time that might better be spent on your family, business, or on vacations. It can be very frustrating. The courts really don’t care how long the probate runs — they are only interested in making sure everyone’s rights are protected and the proceeding is fair. The lawyers aren’t in a hurry either, especially if they are billing hourly. It is hard to give an average length of time for a probate to finish. Many cases have tied things up for well over ten years. A safe bet would be to say that an average probate is around 1.5 years.Emotions Run High Within Families
An intangible cost of probate can be damaged family relations. At first the family may be in shock and everybody tends to pull together. But as the long probate process continues, family stress can take its toll. As time ticks away, somebody will go into the house and take something. Then as family members talk to friends, the friends plant ideas of bad things that happened during so-and-so’s probate process. The “family love” eventually can give way to an all out legal or even physical brawl.
In order to avoid probate, you must make it so the owner of the property doesn’t die. The best way of doing this is with a Revocable Living Trust. When used correctly, you will totally bypass the probate process altogether. You see, when you die, the trust (which will own your property) remains quite alive, and is able to simply designate your choice of a successor to carry out your wishes exactly as you spelled them out. There is no waiting for the long expensive probate process to ‘figure out’ who the new owner should be. The owner didn’t change; just the manager or ‘trustee’.