Probate is the process of administering a decedent’s (deceased person’s) estate. The word “probate” comes from a Latin word, probare, which means “to prove.” After your death, the person who approaches the clerk of court to begin administering your estate must first “prove” either of two things: 1) that your Will, if you have one, was the last one you’d done and that it was validly executed or 2) if you had no valid Will, that he or she can testify, under oath, about the family members you left behind—your heirs at law.
Once the Clerk of Court has verified that the decedent is, in fact, dead and has verified the decedent’s beneficiaries and/or heirs at law, the administration process begins. If there is a Will, the Executor named in the Will is sworn-in. If there is no Will, an administrator is sworn-in. The Executor or Administrator is swearing (or affirming) to do the following things: 1) find out what assets the decedent had, 2) find out what debts the decedent owed, 3) pay costs of administration of the Estate out of the available assets, and 4) distribute the balance of what remains according to the Will or according to the law of the State.
Categorizing Assets into Probate and Non-Probate
One of the most tedious parts of administering an Estate can be discovering the assets of the decedent. While many Executors or Administrators know about a decedent’s financial affairs because they were once the decedent’s caretaker, that is not always the case. Some Executors/Administrators have very little knowledge of the decedent’s financial affairs and must resort to monitoring the decedent’s mail to see what financial information arrives. One of the first tasks of an Executor/Administrator is not only to discover what assets the decedent had at the time of his or her death, but also to categorize those assets into “probate assets” and “non-probate assets.”
Basically, probate assets are the assets that will be reported to the Clerk of Court, be used primarily to pay costs of administration and valid debts, and then will be distributed among the beneficiaries and/or heirs of the decedent according to the Will or state law. Non-probate assets will generally pass to beneficiaries directly and will not be subject to costs of administration and or debts of the decedent. How do you know which is which?
Which Assets are Non-Probate Assets?
Non-probate assets are those which name designated beneficiaries (either by contract or by law). The most common examples include: a bank account held joint with survivorship with another individual, a parcel of real estate held joint with right of survivorship with another individual, an account which lists a Pay-on-Death (POD) or Transfer-on-Death (TOD) beneficiary, an annuity with a named surviving beneficiary, or a life insurance policy with named surviving beneficiaries. For each of these assets, the decedent, during his or her lifetime, indicated specifically who the beneficiary of each asset would be. As long as the named beneficiaries survive the decedent, the beneficiaries will generally take the assets upon death either automatically or by submitting a beneficiary claim form. These assets will generally not be subject to the claims of the decedent’s creditors.
Which Assets are Probate Assets?
If you cannot prove that an asset is a non-probate assets (i.e., if you cannot prove that there is a named surviving beneficiary) then the Clerk of Court will generally consider the asset a probate asset. The most common examples of probate assets include: a bank account in the sole name of the decedent, a brokerage account in the sole name of the decedent, or parcel of real estate in the sole name or the decedent, an interest in a vehicle (even if shared), and accounts and/or policies which do not have surviving beneficiaries named or which list “the Estate” as beneficiary. Because the decedent, during his or her lifetime, did not indicate specifically who the beneficiaries of each asset would be, the Clerk of Court will oversee the asset, use it to pay administrative costs and debts, and then distribute it according to the Will or state law.
What are Probate Fees?
Since the Clerk of Court must dedicate its courthouse staff to oversee the distribution of probate assets, the Clerk charges what is referred to as a “probate fee.” The probate fee is a small percentage of the date-of-death value of the personal property assets determined to be “probate assets.” In North Carolina, the probate fee is currently 0.4%. With proper planning ahead of time, you can arrange your assets to reduce potential probate fees and reduce your future estate’s exposure to creditors’ claims.
In addition to drafting sound legal documents, such as Last Wills and Testaments, Durable Powers of Attorney, Health Care Powers of Attorney, and Living Wills, a good Estate Planning attorney will also ask you what you own, how you own it, and what beneficiary designations you’ve made (if any). The answers to all of these questions will help you make better decisions about the passing of both your probate assets and non-probate assets to your beneficiaries and/or heirs at law. As your assets, your needs, and your beneficiaries change, a good Estate Planning attorney will be with you every step of the way.