In our country’s earlier times, a person would homestead a particular piece of land and obtain a document called a “patent,” from the president of the United States, which proved that the homesteaded land was his or hers. As the people who held these patents died, a question arose as to how to remove their names from the patents and put the names of living persons on them. State legislatures had to create a system for transferring property from a deceased person to a living person while protecting family members who might have a claim or interest in the property and giving them an opportunity to be heard. The probate process was “invented” to accomplish such transfers in a fair and orderly way.
Probate also addresses the claims of a decedent’s creditors. The process gives creditors an opportunity to make and prove their claims so that valid claims can be paid out of the assets of an estate before they pass to the decedent’s heirs.
Probate is the court-supervised administration of your estate. It generally has three purposes:
If you have a will, filing a petition to admit your will to probate is usually the way to initiate the probate process. If you die without a will, a petition to appoint a personal representative, sometimes called an administrator, is filed with the court. In either case, notice to all of your heirs and beneficiaries is generally required before the hearing. (A notice is often published in a newspaper of general circulation within the county of the decedent’s residence.) As a practical matter, this means a delay of approximately 30 days between filing the petition for probate and having a hearing. Until the hearing and court appointment, unless action is taken to authorize the immediate appointment of a special administrator, even your named personal representative (sometimes called an executor, if male or an executrix, if female) is not empowered to deal with your estate affairs. Once a personal representative is appointed, the court will issue documents, often called letters of personal representative, which serve as proof of that person’s authority to take action concerning the estate. Unless you have a will which specifically relieves the personal representative from certain court-imposed duties, he or she may be required to post a bond and file an inventory of assets of the estate, as well as an annual accounting of all transactions.
Probate also involves a particular process for handling creditors. This process is designed to ensure that all creditors have notice of the death and have the opportunity to file creditor claims. Practically speaking, the process is unnecessary in the vast majority of cases since the bills and creditors could simply be paid as statements are received.
Even if bills and obligations of the estate are paid immediately, most probate laws require that estates remain “open” for a minimum period of time, usually 4 to 6 months, to give all creditors time to file claims against the estate. During this time, the law generally restricts the ability of the personal representative to make distributions from the estate.
The personal representative is charged with gathering all the assets of your estate so that they can be used to pay creditor claims and then the remainder can be distributed to your heirs and beneficiaries. Most states allow that estates with a limited amount of assets (for example, in California, estates consisting of personal property valued at less than $100,000) can be collected by an affidavit procedure rather than go through probate. Assets held in a living trust do not require probate administration.
In many states, before an estate can be closed, the personal representative must file with the court an inventory of all the estate’s assets with an appraisal of the value of those assets. The inventory and appraisal which are filed with the court are part of the public record. The intimate details of your estate are open to anyone who cares enough to open the court file. There is no screen to ensure that your estate records are reviewed only for legitimate purposes. If your estate is not liquid and there is a need to sell assets to pay claims or taxes, a potential buyer can inspect your probate file to gain negotiation advantage.
Once the assets are collected, the estate obligations are satisfied, and the minimum waiting period is satisfied, your personal representative can file a final accounting and petition for distribution of your estate. The details of distribution, including who will receive what, are also matters of public record.
If a will is proved invalid or if a person dies without a will or a proper will substitute, the public, legal process which ensues is technically called administration, not probate. However, estate administration is equally as time-consuming and costly as probate, if not more so. Under administration, the disposition of the deceased’s assets is governed by state law, not by the deceased person’s desires, and thus there is greater opportunity for dispute and disagreement among heirs, family, and friends.
For purposes of these questions, we’ll treat the terms “probate” and “administration” as meaning the same thing. The primary difference between the two is that in probate a will has to be “proved,” whereas in administration there is no will to prove.
Anything you own in your own name alone or as a tenant in common with others (including community property) is subject to probate and administration. Beneficiary-designation property for which the “estate” is named as the beneficiary also goes through probate.
Property held in joint tenancy with right of survivorship (including tenancy by the entirety), property held in a living trust, or property distributed by beneficiary designations (as long as the beneficiary is not your estate) does not go through probate. Property held in a life estate, in which you are entitled to the use of the property and all its income only during your life, also does not go through probate.
The disadvantages of death probate proceedings include:
Loss of Privacy. When your estate goes through probate, you lose all privacy. Your will, your assets, and your liabilities all become public record just like any other litigation at the courthouse. Con artists have been known to submit false claims against a probate estate and use the probate record to target heirs and beneficiaries for their next swindle.
Will Contests. Wills can always be contested and put aside—it happens all the time. When a will is contested, the estate is frozen and the assets cannot be transferred to loved ones. It is easy for any disgruntled heir to file a will contest since the will is already in probate court.
Costs. The court charges the estate either a set fee or a fee based on the size of the estate. In addition, attorneys, executors, guardians, and any other fiduciaries acting within the realm of probate (or administration) charge their own fees. The total cost of probate can easily range from 3 to 10 percent of the gross estate—or more. For example, if a person dies owning a house that has a fair market value of $300,000 and other assets amounting to $100,000, the value of the gross estate is $400,000. A conservative estimate of the probate costs would be 5 percent of that gross amount, or $20,000. If the house was mortgaged for $200,000, the value of the net estate is $200,000. Thus, the probate costs would actually amount to 10 percent of the net estate!
Multiple Probates. There must be a probate proceeding in every state in which the decedent owned real property.
Delays. Probate can last from several months to several years. This only adds to the frustrations and anxieties of a grieving spouse and family. Probate has been defined as “the lawsuit you bring against yourself with your own money to benefit your creditors.” This description is quite accurate, but people usually come to appreciate its veracity only after undergoing the probate of a family member or close friend.
No, your taxable estate includes pretty much everything you own at death or had too much control over. So your gross estate will include joint tenancy property (except the half owned by your U.S. citizen spouse, or any portion to which any non-U.S. citizen spouse contributed), your half of community property, the entire value of life estate property, everything in your revocable living trust, and life insurance proceeds from policies you own.
In addition, if you have the power under a trust someone else created to take some assets out of that trust for yourself, the value of those assets will also be included in your gross estate, even if you never exercised that power.
It is possible that, prior to your death, you may become mentally disabled due to disease, stroke, or accident.
Legally referred to as a conservatorship or guardianship, a living probate is a legal proceeding in the probate court which is designed to protect a mentally disabled person who is unable to manage his or her financial affairs. It is the duty of the probate court to protect the disabled person’s assets, creditors, and personal rights and to appoint someone to manage and assume the mentally disabled person’s financial affairs.
There are disadvantages to a living probate:
It Creates Expenses. Inasmuch as it is a court proceeding, a living probate often requires the services of an attorney who will prepare the necessary court documents and make court appearances. The court may require the filing of inventories and accountings, along with periodic reports, which may necessitate the hiring of an accountant. The conservator or guardian may be required to post a bond in order to qualify for service before the court. He or she may also be required to make periodic reports to the court during the period of disability and will often utilize the services of attorneys and accountants, as well as other professionals, throughout that entire period. All these factors are very expensive to the estate.
You Lose Control. The court will determine how your assets are to be spent for your benefit.
You Lose Privacy. Just like a death probate, a living probate is a public proceeding which may result in a substantial invasion of privacy and loss of personal dignity.
Unfortunately, general powers of attorney are not always honored by banks, title companies, brokerage firms, and other financial institutions. These institutions have been increasingly fearful of the potential liability inherent in honoring such powers of attorney. Some have established their own specific requirements regarding powers of attorney. The requirements vary from one institution to another, but in general the older a power of attorney is, the less likely it is that an institution will accept it.
Also, the power of attorney, by nature, is a general one and usually gives the designated agent full power and control to do anything with the disabled party’s assets. Without caring instruction on how the agent is to apply the funds, this general power can sometimes be abused.
Finally, even if you execute a power of attorney, there is no guarantee that you will not be taken before the probate court by a third party who seeks to have you declared incompetent and himself of herself appointed as your financial guardian. In such a case, your power of attorney would become useless. All too frequently, the general power of attorney causes more problems than it corrects.