The Meaning and Avoidance of Probate

Probate is the legal process by which assets that are titled solely in your name are transferred to your beneficiaries and spouse according to your will and your state's law. If you have no will, then your state's law completely determines who gets what. The process can be time consuming and expensive which are reasons to avoid probate if possible. Here's the scoop...

Your county's Probate Court handles the transferring of legal title of property that is solely in the name of the deceased to his or her beneficiaries. Outlined below is the process, the costs and additional considerations of time and exposure.

The process involves:

* Proving to the court that the decedent's Will is valid

* Appointing a representative who has authority to act on behalf of the decedent

* Identifying and inventorying the decedent's property and having it appraised

* Paying debts and taxes that are associated with that property, and

* Distributing the remaining property after obligations are paid to the heirs according to the decedent's Will or the State's laws absent a will.

The costs associated with the probate process include:

* Filing and court fees which are at least 3% of the value of the estate in most states. They may include appraisal costs, executor's fees, court filing fees and certified copies, cost of a surety bond, and accounting fees. Executor's commission in most states is a percentage of the value of the probate estate.

* Lawyer's fees are largely associated with the paper-shuffling processes of probate.

* Total probate can typically cost from 4% to 7% of the decedent's estate value but a contested Will can drive up legal fees.

Probate process time and public exposure are important two considerations. Specifically:

* The probate process can typically take 12 to 18 months causing many of the assets to be unavailable for use.

* Probate is a public process so that anyone has access to viewing what the decedent's assets were and who will end up with what.

-Avoiding probate:

It is the cost, time and public exposure that people find troublesome about the probate process. But it all can be avoided. That's because when there's no property that is solely in the decedent's name at the time of his death, there is no need for probate.

If you want to avoid probate you must simply arrange how you hold your assets so they will be automatically transferred to your beneficiary.

Some of the popular ways to hold your assets that you can control until you die but will automatically pass to another make use of:

Payable-on-Death Bank Accounts: Just fill out a simple form provided by the bank naming a person you want to inherit the money in your account. The beneficiary has no right to this account money while you're living so you can spend it as you wish. At your death, the beneficiary gives proof of his or her identity and can immediately collect the funds in the account.

Retirement Accounts: You're required to fill out a form naming your beneficiary when you start a retirement account such as a 401(k) and IRA. These funds will pass immediately to your beneficiaries upon your death.

Transfer-on-Death Registration of Securities: This works like the payable-on-death bank accounts. When you register your ownership of the securities, be sure to fill out a beneficiary form. Your named beneficiary has no right to the securities while you're living. Upon your death, they simply show proof of your death and their identity to take possession of your securities.

Joint Ownership: If you title your property with another person, then you're sharing ownership of that property with them. In doing so, you are losing sole control over that property and you could trigger a gift tax too. You should get competent legal help for considering this option. Holding property as tenants in common is not joint ownership. Your share is solely owned by you.

Revocable Living Trust: This type of trust allows you to entitle your assets in the name of the trust, not you. And you specify a beneficiary of the trust assets. If your name is John Smith, you can call the trust the John Smith Living Trust. A trust is a separate legal entity from you. So any asset you put into the trust (by entitling it so) will not be subject to probate. Since you're free to do with the assets in the trust as you wish - just as if it were in only your name - you lose no control over your assets. And you can revoke the trust at anytime.


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Shane Flait helps you with your financial legal, tax, and retirement goals.
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