What is Probate?
And why is everyone trying to avoid it?
Probate is a legal process in which your property is identified, inventoried, and distributed to your rightful heirs after your death.
If you have a will, it contains a written record of what you wish to be done with your property. You have named an executor (usually a relative or trusted friend) who will carry out your wishes through the court-supervised process of probate.
The probate begins when the will is submitted to the court along with a petition for probate. A legal notice announcing the beginning of the probate process is published in a newspaper of general circulation, and the will itself becomes a public document. In addition, all the beneficiaries are located and sent a special notice of the probate proceedings by mail.
The executor then begins to locate and identify all the property, which will be inventoried and, if necessary, appraised. Creditors are also notified of the death and advised that the assets will soon be distributed. Your business and personal financial records may be made public during these proceedings. After the required waiting period has passed and all the beneficiaries have been informed, the assets of the estate are distributed to the creditors and beneficiaries. If necessary, an estate tax return is filed and estate taxes are paid.
In cases where there is no will (intestacy) an administrator will be appointed by the court, and your property will be distributed to your "heirs at law." This means the court will follow a format prescribed by the state legislature that specifies who (among family members) should inherit the property. The process is similar to a probate proceeding, but the heirs may or may not be the people you would have chosen yourself. Under the intestacy statutes, only your relatives by blood or marriage may inherit from you. Your best friend, business partner, or domestic partner would all be ignored under these statutes.
There are three important reasons you may wish to avoid probate. First, it is expensive. The fee for probate is set by statute in California. For ordinary services, the executor and attorney each are entitled to compensation based on the total appraised value of the estate (before subtracting debts) as follows:
IT IS IMPORTANT TO REALIZE THAT THE FEES FOR PROBATE ARE CALCULATED BASED ON THE GROSS VALUE OF THE ESTATE, REGARDLESS OF MORTGAGES OR OTHER DEBTS OWED..
The following example illustrates the potentially disastrous effects of probate. Jane M. bought a house valued at $200,000 and paid a $25,000 down payment. She then died. Although she owned only $25,000 of the house, probate fees were calculated based on the full value of the property.
A second reason to avoid probate is that it often ties up your assets for a long time. While the estate is going through the probate process, a lack of liquidity (cash flow) can create problems for your heirs. They may have to pay your mortgage or other debts, or they may be trying to keep your business running. They will need ready cash, but it can be very difficult to sell assets before the probate is complete. An average probate can take 12 to 18 months, resulting in severe financial problems for your family or business.
Third, the probate process can involve many visits, letters, and phone calls between the attorney and the executor, and can place a physical and emotional burden on the survivors. The grieving process is difficult enough without the bother and disturbance that is often involved in probating an estate. Most people would prefer for their loved ones to remember them while on a serene walk in the woods rather than in an attorney's office.
For most people, the best way to avoid probate is by establishing a living trust. A living trust has all the benefits of a will and none of the drawbacks. You can name a guardian for minor children, set up trusts for money left to minor children, and direct how assets are to be distributed. In addition, assets held in a living trust can be disbursed within a few weeks, rather than the 12 to 18 months required for probate, and the tedious probate procedures and fees are avoided.
Probate can be a major complication for your heirs and can cost a great deal in time, money, and inconvenience. Careful legal planning now can provide your loved ones with peace of mind and greater security when they need it most.
Deborah A. Malkin
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About Deborah Malkin
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