So what’s the problem with probate?

The probate process is largely clerical and rarely involves a contested proceeding or lengthy court appearances.  For some people, there is no problem with the administration of an estate in probate court.  For others, the process is unnecessary and one to be avoided. To better understand the probate process, it’s best to first dispel a few misconceptions.  The first misconception is the belief that having a last will and testament avoids probate. Probate is the process for determining the validity of a will and to administer the terms of the will.  The need for probate depends on several factors, including the type of property owned by the decedent and nature of the property ownership.  Owning property in joint tenancy or designating a beneficiary on an account are examples of steps one can take to transfer ownership of property without the need for probate. This type of property is often referred to as “non-probate” property. Property that is left solely in an individual’s name is the property that is subject to the probate process. Misconception number two is that your primary residence and your vacation home can be handled in the same probate proceeding.  Yes, they can be subject to the same probate, but only if the property is located in the same state. If you own property in different states, your estate will need to open a probate proceeding in each of those states. Thus, real estate is probated in the state where the property is located.  A probate proceeding conducted in a state where a decedent is not a primary resident is called an ancillary probate proceeding.  Unless your attorney is licensed in each of the states where you own property, you will need to hire an attorney in each of those states. Another misconception is that the administration of an estate in probate court remains private.  Probate court is a public proceeding, and a decedent’s probate court file is a matter of public record. In most circumstances, anyone can examine the court file by going to the court and requesting to review it. Finally, the most common misconception is that a will distributes the entire estate.  Consider an elderly woman whose primary planning objective is to leave her estate to her two children. The woman signs a will that would accomplish this objective. Upon death, it’s determined that all of her assets are in held in bank accounts that are owned with one child.  The child’s name was put on title for convenience purposes to pay the mother’s bills and expenses.  Due to the titling of the accounts, the child has no legal obligation to share the proceeds with the other child. Essentially, the mother’s will is irrelevant because a will only controls the transfer of “probate property” and only would have controlled the transfer of the woman’s accounts if the child was not a joint owner.  Similarly, people often believe that their last will and testament will govern the disposition of their retirement accounts and life insurance.  Should those accounts have properly established beneficiary designations, those designations will control the disbursement not the terms of the will. Misconceptions aside, what are the steps in probating an estate?  Probate begins by filing an application or petition with the probate court in the county where the decedent resided at the time of death.  If the decedent left a will, a personal representative or executor should be named to administer the estate. If there is no will, the court will appoint this party.  After appointment, the personal representative commences the process of collecting and inventorying the assets of the estate.  Next, the personal representative must pay the valid debts, taxes, and expenses of the estate.  After the obligations of the estate have been satisfied, the remaining assets of the estate are distributed per the terms of the will or pursuant to statute if there was no will.  In total, this process takes anywhere from six to 12 months to conclude for those estates that are not contested.  The fees and costs associated with a typical probate proceeding run several thousands of dollars. So, what is the problem with probate? For those who own property in several states or those who fear the public nature of proceedings, probate should be avoided.  In addition, the probate process should be avoided by those that believe judicial oversight and the related costs are unnecessary. How does one avoid the probate process?  Again, it depends on the type of property owned and the nature of ownership.  However, one of the most common ways to avoid probate is to use a revocable living trust.  A trust is a written agreement that determines how a person’s property is to be managed and distributed during lifetime and upon death.  The party that creates the trust is often referred to as the “grantor” and the party responsible for administering the terms of the trust is a “trustee.” The trust is a “living” trust because it is created during the lifetime of the grantor.  Property held in a revocable trust at the time of the grantor’s death is not subject to probate.  In addition to avoiding the fees and costs associated with probate, the trustee will often begin settling the trust shortly after the grantor’s death, avoiding much of the delay encountered with probate. One of the disadvantages to a trust is that the planning process for the grantor is more involved.  Current assets of the grantor need to be titled in the name of the trust and the grantor must be mindful to transfer newly acquired assets to the trust in the future.  In addition, because the process is more involved than the preparation of a will, the immediate planning costs associated with livings trusts are often higher.  However, this analysis is often short-sighted because a trust can be a tremendous savings to the estate should the probate process be avoided in the end. Ultimately, the decision of whether to avoid probate depends on the type of property, how it’s owned and the planning objectives of the property owner.  Those with estates that will be subject to needless costs and time associated with the probate process should consider a revocable living trust or review other planning options that may be applicable.

David M. Ness specializes in the area of estate planning at Eden Prairie-based Fafinski Mark & Johnson. He works with individuals and organizations in all aspects of estate planning.

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