What happens when a loved one dies: A Primer on Probate

By Katie Martens

In this article we’ll cover:

• What is probate

• The probate process

• The assets are included in probate proceedings

• How much probate costs

When you think about the word “probate,” you likely associate it with other words like “confusing,” “muddy,” “expensive,” and perhaps “I think I should avoid it at all costs but have no idea why.” Probate, like trusts or forming a business entity, conjures many would-be experts that scare you with one aspect of probate without giving you the whole picture. Just as I wouldn’t attempt to replace the brakes on my minivan, I suggest that you consult an attorney in your state if you need help with a probate. This article is meant to give you broad strokes of what you should know about probate, how and if you can avoid probate, and the costs associated with probates.

What is Probate?

Probate is the process of validating someone’s will before a court. Let’s get some terms out of the way first.

• Probate = submit a will to a (usually) probate court to have the court validate the will

• Decedent = the person who died

• Estate = not the Jane Austen, Mr. Darcy-type of estate, this word is frequently used to describe all of the assets and debts of the decedent. When you hear “estate planning,” that usually means someone is working on documents that are suited for their assets and debts, like wills or powers of attorney. Estate planning is before you die, and estate administration (or probate) is after you die

• Will = the document someone has properly executed outlining and designating how they want their property distributed when they die

• Personal Representative/Executor (PR) = the person or entity that has been named in the will as the person or entity that should administer the decedent’s estate

• Beneficiary or beneficiaries = the individuals or entities named in a decedent’s will

• Heirs = individuals the state recognizes that have a right to inherit property from the decedent IF THE DECEDENT DID NOT LEAVE A WILL

I capitalized that last part because we are approaching the murkier part of this probate primer: your estate could end up in probate whether or not you have a will. It totally depends on how you set up your estate plan. Let’s break down some more terms:

• Intestate = dying without a will, and in some states, without any instructions on how you want your property distributed

• Testate = dying with a will

Generally, most states have fairly complex systems set up in their probate courts to supervise cases, but they most commonly boil down to 4 different scenarios:

The main difference between these four categories (keeping in mind that every state may have a slightly different term for each of these categories) is the level of supervision and the level of hostility between parties.

For example, Gramma dies without a will, and Sister A took care of Gramma for the last 10 years, so she files a probate action with the court to get permission from the probate court to administer Gramma’s estate. Sister B objects to Sister A’s request because Sister B believes Sister A to be a big spender and not trustworthy. The probate court is going to look at those filings and designate the case as “formal intestate” because there’s a lot of accusations flying around, and no one has any written direction from Gramma about who was to get her teapot and box fan.

On the other hand, if Gramma died with a will, and no one objects to Gramma’s will, the probate court will likely designate a case like that as “informal testate.” Just typing that felt like a breath of fresh air compared to the first scenario. Bottomline: the messier or more contentious probate proceedings are, the more supervision the probate court is going to give the case.

Most states don’t allow you to introduce a copy of a will to begin a probate proceeding, but if you only have a copy and can’t find the original, then the probate court will usually subject you to a higher supervisory level, which is usually formal intestate.

What is the Probate Process?

I’ve hinted at it, but let’s see if I can make it as generalized and straightforward as possible:

Obviously, every situation will be different, and we are talking broad strokes here. Depending on the level of supervision, the probate court may have to approve each action the PR wants to make, lengthening the process by months and even years.

What assets are probate assets?

The way in which a decedent owned an asset determines whether the asset is subject to estate administration.

Assets which are owned solely in the decedent’s name are probate assets. Remember Gramma’s house and property taxes? If Gramma’s house was only titled in her name, then the house would be a probate asset.

With a few exceptions, generally speaking, joint accounts, pay on death (POD) accounts, transfer on death (TOD) accounts, trustee accounts and life insurance are not probate assets. Gramma’s house again - if she had titled the house in her name and Daughter’s name, as joint tenants with rights of survivorship, then the house would not be subject to probate because it would have gone directly to Daughter. The caveat to that example is that you should nevertheless consult a legal expert in your state as jointly titling property within a few years of death can sometimes trigger Medicaid problems.

How can I avoid probate?

When I speak with clients about their estate plan, they often tell me they want to avoid probate.

“Oh really?” I ask.

“Yes, my mom’s sister had to do probate for her cousin who passed away, and it was a big mess. It took them over a year to sort everything out, and then they had to pay taxes on top of that!” They’ll say ruefully, as if they had to go through the arduous process themselves.

And that’s when I have to gently explain to them, as I am about to explain to you, what we can do to avoid probate….

• Brain dump all of your assets, no matter how small, and all of your debts;

• If you own real estate, title the property jointly with someone else you trust or else see if your state allows TOD deeds or life estates for real property;

• Double and triple check that every investment account you own has a designated beneficiary and contingent beneficiary;

• Add someone to your bank accounts as joint owners (you have to trust them!);

• If you own a car, jointly title the car or execute a TOD deed

• Remember that AVOIDING PROBATE DOES NOT MEAN YOU AVOID PAYING TAXES.

If all of that seems like a lot of work, you can also look into setting up a trust for all of your assets and dumping everything in there. Unfortunately, the work involved in setting that up and maintaining the trust is just as difficult and time consuming as my bullet-pointed list above.

So much of whether or not your estate will be probated depends on the circumstances that surround you at the time of your death - are you the surviving spouse or the last spouse to die? Did you have children, and if so, are they adults or minors at the time of your passing? Have you kept up with your estate plan meticulously so that every asset is properly designated so that it will not be considered a probate asset at the time of your death?

What does probate cost?

Always an important question to ask, and always difficult to give precise answers. There are filing fees associated with probate court, and the more supervision a probate case has, the more the filing fees are.

Some states allow attorneys to take a percentage of the estate as their fee for probating the estate, which can range between 7% - 15%. Other attorneys charge an hourly rate to probate an estate. Generally, the cost for an attorney to probate a fairly simple case can range between $3,000 - $10,000. This expense alone is usually enough to make people clutch their pearls and wipe their brow, resolute in keeping the attorneys from “taking” money from their estate when it could go to their children or other beneficiaries.

But if beneficiaries don’t get along, and fight about everything, costs will go up. Appraisers to determine the value of antiques, jewelry, and real estate are often used to determine value when the PR is creating the inventory of assets to submit to the probate court. If a house needs to be sold, broker fees and the costs associated with closing on a house usually come out of probate assets.

And there are often fees no one expects when tying up the administrative threads of a person’s life - fees to close an account with a utility company, broker fees to close out an investment

account, Homeowners Association fees for failing to maintain a mowed lawn after Gramma died.

Generally, the costs of probating an estate can be significant enough that people will want to try to avoid it. Attorneys tend to think of probate and estate planning in this way: you can either pay for the expense of setting up the proper estate plan for your specific situation so that your loved ones don’t have to pay at the end, or have your loved ones pay at the end because you didn’t plan sufficiently.