5 Things All Inheritors Should Know About Probate
Posted on March 28, 2024 by Katherine Fox.
5 Things All Inheritors Should Know About Probate
After a loved one dies, you are going to learn more than you ever wanted to know about the probate process.
At its most basic level, probate is the legal process of administering a deceased person’s estate through state courts. Depending on the size and complexity of the estate, probate can be simple or a mind-numbingly complex process.
If you’re just about to start the probate process, or if you’re already several months in and feeling overwhelmed, I’ve got the resources you need.
First, download the 20 Terms Inheritors Need to Know to make sure you’re speaking the same language as the professionals you’re dealing with.
Next, read this post and get up to speed on what probate is, the steps of the probate process, and how long probate can take.
If you still need help, reach out to Katherine to schedule a call to discuss your situation and how Sunnybranch can help you navigate the probate process and free up some of your mental space.
1.lWhat is probate?
Probate is the legal process in which a state court oversees the administration and distribution of assets from a deceased person’s estate.
The purpose of probate is to ensure that an estate is distributed to beneficiaries and creditors in accordance with their will or, if someone died without a will, according to state law.
Not all assets will pass through probate. Assets subject to probate include:
Assets owned individually
Personal property and belongings
Property owned as tenants in common
Retirement accounts, life insurance policies, and all other accounts without designed beneficaries
Depending on the state and the complexity of the decedent’s estate, the probate process can take anywhere from 9 months to 2+ years to complete.
What Inheritors Need to Know about Wills, Trusts, and Probate
There are several key steps in the probate process:
1.lFile the Petition
The probate process begins when the estate executor or another heir of the decedent files a probate petition with the court in ALL states where the deceased person owned property subject to probate.
2. Appoint an Executor or Personal Representative
If the deceased person left a will, the court will appoint an executor or personal representative to manage the estate during the probate process. If there is no will, the court will appoint an administrator.
3. Inventory Estate Assets
The estate executor or administration will be responsible for inventorying all probate assets held by the decedent. This can include real estate, bank accounts, and personal property.
4. Notify Creditors and Beneficiaries
The estate executor or administer is required to notify creditors of the death and provide an opportunity to make claims against the estate. Beneficiaries and heirs must also be notified of the probate proceedings.
5. Pay Estate Debts and Taxes
The executor or administrator must pay outstanding debts of the deceased person, including taxes, is responsible for paying any outstanding debts of the deceased person, including taxes and funeral expenses.
6. Distribute Assets
Once all debts and taxes have been paid, all assets are distributed to beneficiaries according to the terms of the will or, if the decedent died intestate, according to state law.
7. Close the Estate
After all liabilities have been paid and all assets are distributed to beneficiaries, the exectuor or administrator petitions the court to close the estate. After court approval, the probate process is complete.
2. What are the pros and cons of probate?
Generally it is easier if you can avoid the probate process entirely, but there are some benefits to the process depending on specific circumstances.
What are the advantages of probate?
The primary benefits of probate occur in situations where claims against an estate, or an estate itself, are subject to disagreement.
This generally occurs in two situations:
Beneficiaries dispute a creditor’s claim to the right to funds from an estate.
Family members disagree about the validity or the terms of a decedent’s estate and are working to undermine the estate distribution process.
In both of these cases, probate may offer an advantage to beneficiaries and heirs by ensuring that all estate settlement processes take place within the confines of a state court and decisions are made by an impartial third-party.
What are the disadvantages of probate?
There are many disadvantages of the probate process and reasons to avoid probate:
Probate can take a long time. Estates going through the probate process can take anywhere from 9 months to 2+ years to settle.
Probate can be expensive. Court fees, attorney fees, appraiser fees, and administrator fees can significantly eat into beneficiary’s expected inheritance.
Probate is public. Probate proceedings are a matter of public record. Any interested party could request the details of what you are inheriting, what your family is fighting about, and when you will get your inheritance money.
Probate is bureaucratic. State courts have control and oversight over every aspect of the probate process. This increases the amount of bureaucracy you need to navigate and the amount of paperwork to complete and boxes to check. It also reduces the flexibility of the estate executor or administrator to resolve conflicts between beneficiaries.
3. How can you avoid probate?
Several estate planning and asset titling strategies allow a deceased person’s estate to avoid the probate process:
1.lAssets held within trusts are not subject to probate.
A trust is a legal arrangement between a grantor (who puts assets into a trust), beneficiaries (who receive assets or income from a trust) and a trustee (who manages and stewards trust assets in line with trust documents.
A revocable living trust is set up with the grantor and trustee as the same person. A revocable living trust can be managed by the grantor until they die, at which points assets will pass to beneficaries.
Irrevocable trusts are often set up with the grantor and trustee as separate entities. Assets placed inside an irrevocable trust are managed by the trustee, as the grantor has given up ownership on assets held within the trust. Assets held in an irrevocable trust will pass to beneficiaries per the terms of the trust.
It is not sufficient to create a trust to avoid the probate process. All assets must as be retitled in the name of the trust in order to pass outside of probate.
2. Assets that pass via beneficiary designation are not subject to probate.
Assets including retirement accounts (401(k)s, IRAs) life insurance policies, payable-on-death (POD), and transfer-on-death (TOD) accounts pass via contract, outside of the probate process.
These assets transfer directly to named beneficiaries according to the information that has been registered with the institution holding the account.
If these accounts do not have beneficiaries on file, they will become part of the deceased person’s probate estate.
3. Assets titled with “Right of Survivorship” are not subject to probate.
Assets held under either “Joint Tenants with Right of Survivorship” or “Community Property with Right of Survivorship” are not subject to the probate process.
Right of survivorship means that when one owner dies, the remaining owner(s) automatically inherit the deceased person’s share of the property, outside of the probate process.
This asset titling is commonly found in real estate and on bank accounts.
4. Small estates may not be subject to the probate process.
Many states offer simplified probate procedures for small estates with assets below a certain threshold. This process may be called “summary probate” or “simple estate probate.”
These thresholds range from a few thousand to hundreds of thousands of dollars, encompassing ONLY the probate assets of an estate.
For example, in Oregon, an estate of any size would not be subject to the probate process no more than $200,000 of real property and no more than $75,000 of personal property is subject to probate.
These small estate exemptions provide flexibility for those who die with minimal assets and those who accidentially leavel an account or two outside of their estate plan to avoid probate.
LEARN MORE ABOUT MANAGING AN INHERITANCE
4. When is a will probated?
If a deceased person dies with a will and their estate is subject to the probate process, the will must be filed in the state(s) where the deceased person owned assets. States have different rules for how quickly the will must be filed after a person’s death, but it commonly within 30 days after the date of death.
If a deceased person dies without a will, it is called dying intestate. Whether or not an estate is subject to probate, those who die intestate will need to go through a court-supervised process to name an estate administrator and dictate the distribution of the estate according to state intestacy laws.
5. How long does probate take after death?
The length of time the probate process takes can vary greatly depending on:
The state(s) where the deceased person owend assets
The size and complexity of the estate
Disagreements and legal actions between beneficiaries and other family members,
Estates where a simple or summary probate can be filed may be done with the process in a matter of months.
Large estates with complex assets, or estate in which there is disagreement about the distribution of assets to beneficiaries, may not complete the probate process for two years or more.
Let’s take the next step together
Understanding what happens when you inherit money from a trust is not easy. Beneficiaries can encounter a wide variety of different situations requiring knowledge and finesse to manage. If you need more help, you can download The 20 Inheritance Terms you Need to Know, or reach out to Katherine Fox, CFP® and CAP®, a financial planner for inheritors to learn how Sunnybranch can help you build a plan to manage your inheritance from a trust.