Probate
Probate is a term that often comes up when discussing estate planning, but what does it really mean? In simple terms, probate is the legal process that happens after someone dies to make sure their estate is given to the right people. This guide will explain the probate process, when it is necessary, and how to avoid it.
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What is Probate?
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Probate is a court-supervised procedure that authenticates a deceased person's Will (if one exists) and appoints an Executor to manage the estate. The Executor's responsibilities include locating and valuing the deceased's assets, paying any debts and taxes, and distributing the remaining property to the Beneficiaries. Probate ensures that the deceased's wishes are honored and that the estate is settled in an orderly manner.
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What Goes Through Probate?
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Certain assets and property will go through probate, including:
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1) Solely Owned Property: Property titled solely in the deceased's name will go through probate to establish new ownership. This includes real estate, vehicles, and other assets that are solely owned.
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2) Tenants in Common Property: Unlike joint tenancy with rights of survivorship, where the property automatically passes to the surviving owner, tenants in common ownership requires probate.
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3) Most Personal Property: Items without a title, like household goods and personal belongings, fall into this category. These items can include furniture, jewelry, artwork, and other personal effects. Because there is no title or deed, the probate court must determine the rightful owner.
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4) Predeceased Beneficiaries: If a named Beneficiary dies before the decedent and the designation is not updated, the the property or assets will have to be probated. This can create complications, especially if there is no backup Beneficiary listed.​
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What Does Not Go Through Probate?
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With proper planning, certain assets can bypass the probate process, including:
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1) Beneficiary Designations: Life insurance policies and retirement accounts with designated Beneficiaries transfer directly to them without probate. These assets are not subject to the terms of the Will and pass outside of the probate process.
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2) Jointly Titled Property with Rights of Survivorship: Property titled jointly with Rights of Survivorship automatically goes to the surviving owner without probate. This type of ownership is common among spouses but can also be used with other family members or friends.
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3) Trust: Assets placed in a Trust are managed by the Trustee and distributed according to the Trust's terms, avoiding probate. Trusts offer flexibility and control over how and when assets are distributed.
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4) POD (Payable on Death) or TOD (Transfer on Death) Items: Bank accounts and other assets titled with POD or TOD designations transfer directly to the named Beneficiary. These designations are easy to set up and can be changed at any time.
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How Probate Works
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The probate process can vary depending on the state and even the county, but it generally involves the following steps:
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1) Will Validation: The court must first authenticate the Will to ensure it was properly signed and witnessed according to the law.
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2) Executor Appointment: The court appoints an Executor, who is usually named in the Will. If there is no Will, the court will appoint an Administrator or Personal Representative to handle the estate. The Executor is responsible for managing the estate, paying debts, and distributing assets.
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3) Bond: While bonds can be costly, they are not always required, especially if the Will requests a waiver. The bond acts as an insurance policy, ensuring that the Executor performs their duties faithfully.
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4) Notifying Creditors: The Executor must notify all potential creditors of the deceased's passing. This involves finding and communicating with these parties to settle debts. Creditors are given a specific period to make claims against the estate.
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5) Asset Valuation: An assessment of all assets is conducted to determine the estate's total value. This may involve hiring a professional appraiser for larger estates. Accurate valuation is crucial for calculating estate taxes and ensuring fair distribution among Beneficiaries.
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6) Paying Debts and Fees: The estate is used to pay funeral expenses, medical bills, taxes, and any other outstanding debts. The Executor must prioritize these payments according to state laws.
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7) Distributing Remaining Assets: After all debts are settled, the remaining assets are distributed to the Beneficiaries according to the Will or the court's decision. The Executor must follow the instructions in the Will or, if there is no Will, the state's intestacy laws.
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When is Probate Necessary?
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Probate is generally required unless you have taken steps to avoid it through proper estate planning. Without a Will, the process becomes more complicated and follows the laws of intestacy, which dictate how the estate is distributed in the absence of a Will. Intestacy laws vary by state but generally prioritize spouses, children, and other close relatives.​​
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Conclusion
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Probate can be a complex and time-consuming process, but with proper planning, it can be simplified or even avoided. Establishing a Will or Trust, naming Beneficiaries, and considering joint ownership are all effective strategies to ensure your estate is handled according to your wishes and with minimal stress for your loved ones. By understanding the probate process and taking proactive steps, you can make a difficult time a little easier for those you leave behind.