What is a Probate?

Probate is the process that transfers legal title of property from the estate of the person who has died (the “decedent”) to his or her proper beneficiaries.

The term “probate” refers to a “proving” of the existence of a valid Will, or determining and “proving” who one’s legal heirs are if there is no Will. Since the deceased can’t take it with him, probate is the process use to determine who gets his or her property.

What is the Purpose of Probate?

The primary function of probate is transferring title of the decedent’s property to his heirs and/or beneficiaries. If there is no property to transfer, there is usually no need for probate.

Another function of probate is to provide for the collection of any taxes due by reason of the deceased’s death or on the transfer of his or her property.

The probate process also provides a mechanism for payment of outstanding debts and taxes of the estate, for settling a deadline for creditors to file claims (thus foreclosing any old or unpaid creditors from haunting heirs or beneficiaries) and for the distribution of the remainder of the estate’s property to one’s rightful heirs.

Does All a Person’s Property Have to Go Through Probate?

No. Some process is a must to transfer legal title from the deceased’s own name to his or her beneficiaries or heirs. Most states also allow a limited amount of several types of property to pass to certain beneficiaries free of probate, or through a simplified probate procedure.

Real and personal property owned as a joint tenant passed to the surviving co-owners without going through probate.

 Other types of benefits, such as a life insurance policy or annuity payable directly to a named beneficiary bypass probate. Money from IRAs, Keoghs, and 401 (k) accounts transfer automatically, outside probate, to the persons named as beneficiaries. Bank accounts that are set up as payable-on-death account (POD for short) or an “in trust for” account (a “Totten Trust”) with a named beneficiary also pass to that beneficiary without probate.

If a Living Trust hold legal title to some of your property, that also passes to the beneficiaries without probate. (The Trust is a legal entity which survives you after your death.)

Does a Will Cover All My Property?

No. A Will does NOT cover all of what you may consider to be “your property.” For example, if you own pension plan assets, or 401 (k) plan assets, or life insurance, or annuities, or property held through a “Trust”, such property and benefits would typically pass to the specific beneficiaries you have named with the manager of the pension plan, the company sponsoring the 401 (k), each life insurance company, each annuity company, and in the Trust. Of course if the beneficiary of such assets is simply named as “my estate” then the Will would control who gets the property and benefits – although this very often creates bad tax consequences and major delays and expense for your beneficiaries.

How Long Does the Probate Process Take?

The duration with the size and complexity of the estate, the difficulty in locating the beneficiaries who would take under the Will, if there is one, and under state law.

If there is a Will contest, or anyone objects to any actions of the Personal Representative, things can really drag out. Some matters have taken decades to resolve.

Do We Have to go Through the Probate Process if There is a Will?

Why Can’t We Just Distribute the Assets as the Will Says?

Generally it is necessary to go through probate or, in the case of smaller estates, a less formal procedure that is still under the general supervision of the probate court, before the deceased’s property can be legally distributed.

Even if a person dies with a Will (which is known as dying “testate”), a court generally has to have an opportunity to allow others to object to the Will, and if there are any objections, to determine if the Will is valid, because it is always possible that

(1) there was a later will (which, if valid, would replace the older Will,) or

(2) the Will was made at a time the deceased was not mentally competent to make a Will, or

(3) the Will was the result of fraud, mistake or “undue influence” or

(4) the Will was not properly “executed,” or

(5) the so-called Will is actually a forgery, or

(6) for some other reason (such as a pre-existing contract) the Will is not fully valid, or

(7) there are other claims against the deceased’s estate that impact what the beneficiaries under the Will would receive.

For example, if the deceased owned real estate in his own name, no knowledgeable outside person would accept title to the property, and no bank would lend a new buyer mortgage money on it, unless the estate went through probate so “clear title” could be given to the new buyer. Similarly, few outsiders would enter into any other transactions involving the deceased’s property before the Will is “admitted to probate” and/or someone is lawfully appointed to act for the estate.

Who is Responsible for Handling the Probate Process?

The Personal Representative (sometime also referred to as the “executor” or “executrix” if there is a Will, or the “administrator” or “administratix” if there is no Will) is appointed as part of the probate proceeding and has the responsibility for managing the estate through the proceeding, subject to established probate rules and procedures.

In many states, the probate court has a considerable amount of control over the activities of the Personal Representative, and requires that she or he obtain prior permission of the court before certain actions, such as the sale of real estate or business interests owned by the estate, may take place.

How Can I Avoid Probate of My Estate?

One approach to reduce or eliminate the need for probate is though use of a Living Trust that holds legal title to some or all of your property at the time of your death. The Trust is a legal entity which survives you after your death.

How Much Does Probate Cost?

The cost of probate may be set by state law or by practice and custom in your community.

When all the costs are added up – and the costs may include appraisal costs, executor’s fees, court costs, costs for a type of insurance policy known as a “surety bond”, plus legal and accounting fees, probate can easily cost from 3% to 7% of the total estate value, and more. If there is a “Will contest” all bets are off.

How are Taxes Handled in Probate?

For federal and state tax purposes, death triggers two events:

(1) It ends the decedent’s last tax year for purposes of filing an income tax return, and,

(2) It establishes a new, separate entity for tax purposes, the “estate.”

For Federal tax purposes, it may be necessary to complete and file one or more of the following, depending on the decedent’s income, the size of the estate, and the income of the estate:

(1) Final Form 1040 Federal Income Tax return.

(2) Form 1041 Federal Fiduciary Income Tax returns for the estate.

(3) Form 709 Federal Gift Tax return(s).

(4) Form 706 Federal Estate Tax return.

For state purposes, an executor must file the appropriate state income tax return (assuming the decedent was required to do so while living) and any state income tax returns during the probate period, plus possible estate tax, inheritance tax and gift tax returns. (In many states, gift, estate and inheritance taxes have been eliminated for most small and medium-sized estates.) The requirements for filing and payment vary widely from state-to-state.

Other taxes require the attention of the personal representative in the probate process, such as local real estate and personal property taxes, business taxes, and any special state taxes.

The executor should also be alert to the possibility of issues arising from tax years prior to the decedent’s death.