Probate: What it is. Why you should avoid it.
Probate is the process of administering the estate of someone who has died or becomes incapacitated. It exists because no one can legally sign your name, even your spouse. According to the AARP, over $2 billion dollars is spent in Probate-related expenses, an average of 2-7% of each estate.
During your lifetime you should have a current Financial Power of Attorney, which appoints a trusted person to be your agent in the event you are physically or mentally incapable of signing your name and managing your affairs. Doing so can avoid a costly guardianship over your estate, which often leads to multiple unnecessary complications.
What happens at your death?
Your Financial Power of Attorney will be of no help, as it is revoked, by operation of law at your death. If you have assets solely in your name when you die, they are processed through Probate Court. A judge appoints an executor with authority to sign your name, pay your creditors and distribute your assets to your heirs. If you have a Will, the beneficiaries listed in your Will will most likely receive their stated share of your estate. If you do not have a Will, those related to you at your death, your heirs, will receive your estate proportionately.
You should know that having a Will does not avoid Probate. Just the opposite is true. If you have assets in your name at your death, they cannot be transferred to your heirs without a Probate Court order. The Probate process can take years, and on average it will take 18 months, because, in large part, the system was not designed to administer the estates of every person. In Cook County, there have been over 100,000 pending cases, with less than ten judges to administer the case load. Also, property owned in different states must be Probated in that state and also in the state where the person resided at the time of death – multiple Probate proceedings.
The good news is that not all estates go through Probate. So what is not subject to Probate?
• Jointly held property passes to the surviving joint tenant, often a spouse. However, when the survivor dies, there will be Probate. So joint tenancy only delays Probate.
• Estates with a value less than $100,000 can be administered through Small Estates Affidavit, outside the Probate Court.
• Deferred compensation, life insurance, POD and other accounts pass directly to the adult beneficiary. However, if the beneficiary is a minor, the proceeds must go to Probate and be held to be held until the minor reaches 18 years old. Also, any proceeds for a beneficiary who has a physical or mental disability must also be held in Probate for the duration of the disability, often for the beneficiaries lifetime.
The bad news is, even though there are a few ways to avoid Probate for some assets, rarely, if ever, can you avoid the Probate process for your entire estate if it exceeds $100,000. Your best plan to completely avoid Probate is a Living Trust.
A Revocable Living Trust is a written, legal document that allows you to privately and efficiently pass your assets (real property, bank accounts, stock, saving certificates, personal property, etc.) to your family, friends or charitable organizations after your death – outside of Probate Court.
• At the creation of your trust, all of your assets will be transferred from your name and titled in your trust.
• You retain unlimited access to and full control of your assets during your lifetime while you have your capacity.
• A Revocable Living Trust allows you to appoint someone of your choice (as Successor Trustee) to manage your assets after your death or during your incapacitation.
• It may be amended or revoked at any time as long as you are mentally competent.
• Your assets and belongings will be distributed privately and efficiently to your beneficiaries, under the terms that you have established within your trust.
Avoiding the cost, time and headaches of probate is advisable. A Living Trust estate plan is the most efficient and effective estate plan, that, when properly drafted and funded, avoids the probate process for your family.
This blog entry has been created for information and planning purposes. It is not intended to be, nor should it be substituted for, legal advice, which turns on specific facts, as well as laws in specific jurisdictions. No reader of this blog should act or refrain from acting on the basis of any information included in, or accessible through, this blog without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the reader’s state, country or other appropriate licensing jurisdiction.