Many people have heard they should avoid probate, but few understand what probate is and how the process works.
What is Probate?
Probate is the legal process that wraps up a person’s legal and financial affairs after their death. During the probate process a person’s property is identified, cataloged, and appraised. In addition, probate makes certain any outstanding debts and taxes are paid. It can be a complex process, filled with very specific legal requirements.
For example, if someone dies without a valid will, the probate court sees the deceased person’s assets are distributed according to the laws of the state.
If someone dies with a valid will, the probate court is charged with ensuring the deceased person’s assets are distributed according to their wishes.
Probate can take a long time – anywhere from a few months to more than a year. If there is a will, and one or more of the heirs chooses to contest the documents the process can take a lot longer.¹
Probate can be expensive. Even though probate costs are capped in some states, they may reach between 3% and 7% of the estate’s value. That’s calculated on the gross value of the estate before taxes, debts, and other expenses are paid. And if probate process is challenged, the legal costs can rise.²
Finally, probate takes place in a public court. That makes everything a matter of public record; there is no privacy. Anyone who wants to, can find out exactly what was left behind and how much a deceased person’s heirs received, and can review the court records for the deceased person’s estate.
Those who have concerns for their heirs’ privacy may want to take steps to manage the probate process.
Every estate passes through probate following the person’s death. Probate can be a public process that discusses all your assets, or it can be managed to include as little information as possible. When preparing your estate documents, consider how you want the courts to handle your personal finances after your passing.
Property That Avoids Probate
Some assets can be structured so they may not have to go through probate. Here’s a partial list:
- Property held in a trust
- Jointly held property (but not common property)
- Death benefits from insurance policies (unless payable to the estate)
- Property given away before you die
- Assets in a pay-on-death account
- Retirement accounts with a named beneficiary