At Clarity Legal Group®, we have a lot of conversations with our clients about probate avoidance. This is really about organizing the ownership of your assets in a way which considers your goals and the most efficient way to manage the transfer of those assets upon your death. Estate planning, when comprehensive in nature, should accomplish much more than just creating a road map for the distribution of your assets after you are gone. Your estate plan should also protect those assets and help them grow while you are alive as well as provide for your loved ones in the event of your incapacity or death. You may have also heard people discussing the importance of adding probate avoidance tools and strategies to a well thought out estate plan and wondered “why avoid probate?” To answer that question it is necessary to gain a better understanding of the probate process.
What Is Probate?
When most people die, they leave behind an estate that consists of all assets, both tangible and intangible, owned by the decedent at the time of death. What many people don’t understand is that when you have a Will, it does not necessarily control all of your assets at death. Probate is the legal process by which that slice of your assets which are controlled by your will or administrative estate are identified, located, valued, and eventually distributed to the intended beneficiaries and/or legal heirs of the estate. If the decedent left behind a valid Last Will and Testament, the individual named as the Executor in that Will is responsible for overseeing the probate process and the terms of that Will dictate how the estate assets are distributed. If the decedent died intestate (without a Will), someone typically volunteers to be the Personal Representative or Administrator of the estate which entails essentially the same duties and responsibilities as an Executor. In an intestate estate, the state intestate succession laws will be used to determine the distribution of estate assets.
Common Steps in the Probate Process
Just as with any legal process, the probate process is never exactly the same for any two estates. Nevertheless, there are a number of steps that are common to the probate process, including:
- Identifying, locating, and valuing all estate assets. All assets owned by the decedent at the time of death must be identified and a date of death value ascertained.
- Categorizing assets as probate or non-probate assets. Because not all assets are required to go through probate, assets must be categorized as probate or non-probate assets.
- Opening the probate of the estate. The Executor initiates probate by filing a Petition, Application for Letters Testamentary, the original of the Last Will and Testament, along with an official death certificate, in the appropriate court. If there is no Will, the process is essentially the same, although the forms a little different and the person appointed as the fiduciary is the Administrator, rather than the Executor.
- Notifying creditors of the estate. Known creditors are required to be notified by letter of the right to make claims against the estate; however, unknown creditors must be notified via publication in a local newspaper.
- Reviewing creditor claims. Creditors have a statutory time period within which they must file claims against the estate. The Executor/Administrator must review all claims and decide if they should be paid or denied.
- Defending any challenges to the estate. If someone files a Will contest challenging the validity of the Will submitted for probate, the entire probate process effectively comes to a halt until the challenge is litigated because the outcome determines how the estate is probated.
- Calculating any paying federal (and state, if applicable) gift and estate taxes. All estates are potentially subject to federal (and sometimes state) gift and estate taxes. If any are due, they must be paid out of the estate assets before assets can be transferred to beneficiaries and/or heirs.
- Transferring the remaining assets. If assets remain at the end of the probate process, they are transferred to the beneficiaries pursuant to the decedent’s Will or to the heirs of the estate pursuant to the state’s intestate succession laws.
Why Avoid Probate?
I think you have not really had estate planning if you have not considered strategies to avoid or at least limit your exposure to probate. This is done by organizing your affairs such that some binding arrangement other than your Will controls your assets at death. For assets which might typically be otherwise controlled by your Will, the best approach for avoiding probate is the use of a Revocable Living Trust.
Avoiding probate is a common estate planning for several reasons. First, if your estate goes through probate, the terms of your Will, and therefore the gifts you made in that Will, become public record. By avoiding probate you can keep details regarding the distribution of your estate private. Second, probate is time-consuming. In North Carolina, creditors have 90 days after notification to file claims. Consequently, probating even a modest and uncomplicated estate typically takes a minimum of five to six months. Often, the probate process can take a year or longer, meaning beneficiaries must often wait a long time to receive their intended gifts. Finally, probate can be expensive. There are fees paid to the court based up the value of the assets passing under the probate which can be thousands of dollars. Everyone involved in the probate of an estate, including the Executor/PR, attorneys, appraisers, real estate agents, and accountants, is entitled to a fee for their services. The cost of probate can significantly diminish the value of the estate that is ultimately distributed to loved ones.
Finally, probate is frustrating and bureaucratic. If you have a Will and an Executor you trust, there is literally no upside or advantage to probate.