Probate 101: Everything You Need to Know

Probate is the legal process in which a deceased person’s property is distributed according to their will or state law (according to the American Bar Association). While often necessary, it can be a costly and time-consuming process. But how exactly does it work? Can one avoid it? Do all estates qualify? Keep reading to find out more!

What Is Probate?

Probate is the legal process through which a deceased person’s estate is settled. It involves validating the deceased person’s will (if one exists), identifying assets, paying debts and taxes, and distributing remaining assets to beneficiaries or heirs.

Purpose of Probate:

• Validates the deceased person’s will and ensures its instructions are carried out.
• Protects the rights of creditors by providing a mechanism for them to make claims against the estate.
• Facilitates the orderly transfer of assets to beneficiaries or heirs.

How Probate Works

If the deceased had a will, the court will use this document to guide the distribution process. However, many people do not have a will. In cases like these, state law determines the distribution of assets. Additionally, courts oversee the distribution of the deceased person’s assets to their beneficiaries. The process usually process lasts a year or longer. Not only do costs vary from state to state, but they also depend on the size of the estate.

• Filing the Petition: The process usually begins with the filing of a petition with the probate court. This petition seeks to admit the deceased person’s will (if one exists) to probate and appoint an executor or personal representative to oversee the process. In most circumstances, the executor begins the process.
• Notification of Heirs and Creditors: Once the petition is filed, heirs and beneficiaries named in the will, as well as creditors of the estate, are notified of the proceedings. This allows them to contest the will or make claims against the estate for any debts owed to them.
• Inventory and Appraisal: The executor is responsible for identifying, gathering, and appraising the deceased person’s assets. These generally include:
  • Bank accounts
  • Real estate
  • Artwork
  • Jewelry
  • Stocks and bonds
  • Retirement accounts
• Paying Debts and Taxes: Before any assets can be distributed to heirs or beneficiaries, the executor must use estate funds to pay off any outstanding debts and taxes owed by the deceased person. This can include funeral expenses, medical bills, loans, and income or estate taxes.
• Distribution of Assets: Once debts and taxes have been settled, the remaining assets are distributed to heirs and beneficiaries according to the terms of the will or state law if there is no will. This distribution is overseen by the executor and approved by the court.
• Final Accounting: After all assets have been distributed and debts paid, the executor must submit a final accounting to the court detailing all financial transactions related to the estate. Once approved by the court, the probate process is complete.

When is Probate Required?

Generally, probate is required if the deceased owned assets that didn’t pass directly to a beneficiary upon death. Assets such as a home or other real estate, bank accounts, and investments will likely need to go through probate. However, some assets, such as payable-on-death accounts, may be exempt. According to Trust and Will, few exceptions exist in states where laws are in place to protect small Estates from lengthy court proceedings. Generally speaking, probate is typically required under the following circumstances.

No Will Exists

If the deceased person didn’t have a valid will, their estate will typically need to go through probate to determine how assets should be distributed according to state law. The state will appoint an executor, and the intestate succession laws of that state will determine what happens to the assets. 

A Will Isn’t Valid

If a Will isn’t valid for any reason, then the probate court will typically step in and get involved. An invalid Will can result in a court case.

Large or Complex Estates

Probate may be necessary for estates with significant assets or complex ownership arrangements, such as real estate holdings, business interests, or valuable personal property.

Disputes Among Heirs or Beneficiaries

Probate provides a legal framework for resolving disputes among heirs or beneficiaries regarding the distribution of assets or the validity of the will.

State Law Requirements

Some states have specific laws and procedures governing the probate process, which may require probate even for relatively small estates or certain types of assets.

While probate is often necessary in these situations, there are strategies available to minimize or avoid probate! Always consult an estate planning attorney to figure out the best approach for your estate and assets.

Do all Estates Go through Probate?

Fortunately, not all estates go through probate! If the value of the estate is small, the estate may be able to bypass it altogether. Since each state has different rules, check your state’s laws to see if yours qualifies for an exemption. For example, in some states, you might be able to avoid probate altogether via a small estate affidavit. The definition of a small estate does vary from state to state. For example, the maximum value to qualify for the small affidavit process ranges from $50,000 to $150,000 (according to HelpAdvisor).

Other scenarios where probate may not be required include:

• Assets with Beneficiary Designations: Certain assets, such as life insurance policies, retirement accounts, and payable-on-death (POD) or transfer-on-death (TOD) accounts, allow for the designation of beneficiaries. These assets typically pass directly to the named beneficiaries outside of probate.
• Joint Ownership with Rights of Survivorship: Assets held jointly with rights of survivorship automatically pass to the surviving joint owner(s) upon the death of one owner, bypassing probate. Common examples include:
  • Joint bank accounts
  • Real estate held as joint tenants with rights of survivorship
  • Joint brokerage accounts
  • Vehicles
• Assets Held in Trust: Assets held in a living trust are not considered part of the probate estate and do not go through probate. Instead, they are distributed according to the terms of the trust document.
• Surviving Spouse’s Elective Share: In some states, a surviving spouse may be entitled to an elective share of the deceased spouse’s estate, which may be claimed without going through probate.
• Informal Probate Procedures: Some states offer informal probate procedures that allow for simpler and less formal administration of estates. This may involve submitting certain documents to the probate court without the need for formal court hearings or supervision.

What Does Probate Cost?

Probate costs vary depending on a case-by-case basis, but many factors determine the associated fees. In general, the costs take up approximately 3% to 8% of the estate. Of course, complex estates may require even more fees. Costs may also be dependent on each state’s probate laws. For example, some states have a simpler process that may incur fewer fees. Additionally, here are some of the other potential costs associated with probate:

Attorney Fees:

Attorney fees are one of the most significant costs of probate. Attorneys typically charge either a flat fee or an hourly rate for their services. The complexity of the estate and the level of attorney involvement can influence the total cost. However, it’s important to note that costs typically vary by state.

Court Fees

Probate court fees vary by jurisdiction but typically include filing fees for initiating probate proceedings, as well as fees for filing various documents and petitions throughout the probate process. According to Trust and Will, here are some of the costs often associated with court fees:

• Filing Fee – Filing fees can generally range anywhere from $50 – $1,200.
• Certificate Fee – These official certificates, which display the court’s seal, authorize an Administrator or Executor to act on the deceased estate owner’s behalf. Many institutions, such as the DMV and banks, will require this when doing business. Certificates generally range anywhere from $5 to $20 per certified cop.
• Notifications – To properly settle an estate, the executor must notify the beneficiaries and heirs. Typically, this costs anywhere from $10 to $300.

Bond Premiums

In some cases, the executor may be required to obtain a bond to protect the estate from mismanagement or fraud. The cost of the bond premium is typically based on the value of the estate and the executor’s creditworthiness.

Other Miscellaneous Expenses

There may be other miscellaneous expenses associated with probate, some of which include:

• Notary Fees
• Storage Fees
• Postage Fees
• Travel Fees
• Estate Sale Preparation Fees

Who Pays for Probate Fees?

Probate fees typically come from the deceased estate. Beneficiaries must split a percentage of the charges. Alternatively, if the estate can’t cover the fees, the cost may fall on the next of kin. Unfortunately, many families may have to pay the fees out-of-pocket. This can be a significant financial burden. In some cases, if the estate lacks sufficient liquid assets to cover probate fees and expenses, the executor or personal representative may need to petition the court for authorization to sell estate assets or take other actions to raise funds to cover expenses. Additionally, certain expenses, such as attorney fees, may be negotiated or approved by the court before being paid from the estate.

How Can I Avoid Probate?

Fortunately, probate isn’t always a given! Many people want to avoid it and for a lot of good reasons. It can be time-consuming, expensive, and a headache when your loved ones are already dealing with grief. Additionally, probate documents are also public record, meaning that anyone can view them. For people who value their privacy, this might be disconcerting. However, there are many ways you can avoid probate! Here are just a few of the estate planning strategies that might help you do exactly that.

Living Trust

Creating a revocable living trust is one of the most effective ways to avoid probate. Assets transferred to the trust during your lifetime are no longer considered part of your probate estate and can be passed directly to your beneficiaries according to the terms of the trust.

Gifts

Making gifts of assets during your lifetime can reduce the size of your estate and minimize the need for probate upon your death. However, make sure you consider the potential gift tax implications and consult with a tax advisor before making significant gifts!

Small Estate Affidavit

In some states, estates that fall below a certain threshold value may qualify for simplified probate procedures or may be able to avoid probate altogether by using a small estate affidavit or similar procedure.

Payable-on-Death (POD) Accounts

Certain bank accounts and investment accounts allow you to designate a payable-on-death (POD) beneficiary who will automatically inherit the account upon your death, without the need for probate.

Takeaway

Probate is an important legal process that ensures the orderly distribution of a deceased person’s estate. While it can be complex and costly, understanding the probate process can help you plan for the future. An estate planning attorney can provide further guidance and help you come up with a plan that’s perfect for you, your loved ones, and your estate.

Still looking for more articles just like this one? Then be sure to check these out before you go!

• Do ALL Assets Go Through Probate?
• Avoid Probate with These 8 Little-Known Estate Planning Hacks
• 7 Clever Ways Your Estate Can Avoid Probate (Legally!)
• Does Florida Have An Estate Tax?
• Last Will and Testament Template/Worksheet

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