When you lose a loved one, there are so many emotions to process. There is also the financial side of things to take care of. A common question that arises is whether a will has to go through the probate process. In this article, we’ll address the factors that determine whether a will needs to be probated.
Understanding Probate: A Recap
What is probate? Probate is the legal process where a deceased person’s assets, estate, and final affairs are managed and distributed. It ensures that the decedent’s wishes, as stated in their will, are carried out, and it provides a structured framework for settling any outstanding debts and obligations.
When Is Probate Necessary?
The necessity of probate depends on various factors, including the assets owned by the deceased person, the presence of a valid will, and the local laws governing estates. Here are key considerations to help determine whether a will needs to be probated:
Type of Assets: Assets held solely in the deceased person’s name typically require probate. These may include real estate, bank accounts, vehicles, and personal belongings. However, assets with designated beneficiaries, such as life insurance policies and retirement accounts, bypass probate and are directly transferred to beneficiaries. *Note, that many people do not have a beneficiary designated, so it is important to determine whether those accounts already have beneficiaries designated.
Estate Value: The total value of the estate also plays a role. An estate may qualify as a “small estate” depending on its value. This means that if the estate’s value falls below the specified limit, the assets may be transferred without going through the a full probate process. For example, if the only asset (with no beneficiary designation, not co-owned with a right of survivorship, or not owned by a Trust) is a checking account with $1,200 in it, the small estate process may be able to be used.
Legal Challenges: If there are disputes regarding the validity of the will, disagreements among beneficiaries, or challenges to the appointed executor, probate may become essential to resolve these issues under court supervision.
Benefits of Avoiding Probate
While probate serves an essential purpose, some individuals seek to minimize its impact on their estate for various reasons. Avoiding probate can also save money when it comes to dealing with creditors.
These are some of the advantages and benefits of avoiding probate:
Privacy: Probate proceedings are typically a matter of public record. Avoiding probate can help keep the details of the estate and its distribution private.
Time and Cost: Probate can be time-consuming and expensive due to court filing fees, newspaper publication fees, mailing expenses, legal expenses, and it takes a long time. Avoiding probate can expedite the transfer of assets to beneficiaries.
Simplicity: Avoiding probate may streamline the process for beneficiaries which reduces burdens on a decedent’s family during an already challenging time.
Estate Planning Strategies to Avoid Probate
How can you avoid probate? To avoid or minimize the need for probate, individuals can consider the following estate planning strategies:
Revocable Living Trust: Assets placed in a revocable living trust are not subject to probate. The trust becomes the legal owner of the assets, and a designated trustee manages and distributes them according to the grantor’s instructions. This is a loophole to probate because the trust is considered to be a private contract between the settlor (who is the person creating the Trust) and the Trustee (who is the person in charge of making distributions after the settlor’s death).
Joint Ownership: Holding assets in joint tenancy with rights of survivorship allows the assets to transfer automatically to the surviving owner, bypassing probate. Note, however, that if you do have an account that is jointly owned, the survivor has no legal obligation to share any of it with anyone else. Legally, the account belongs to whoever survives. Also note that when an account is jointly owned, it is considered a joint asset. Therefore, if the person you co-own the account with has some kind of creditor issue, lawsuit, or tax issue, the account they are a joint owner of, will be considered their asset too which could endanger your assets.
Beneficiary Designations: Naming beneficiaries for assets such as life insurance policies, retirement accounts, and payable-on-death bank accounts ensures direct transfer to the beneficiaries without probate. Beneficiary designations can be problematic if:
There are multiple beneficiaries
The beneficiary is a minor
The beneficiary has special needs, collects disability or other government assistance
The beneficiary has creditor issues
The beneficiary lacks financial literacy and it would be wiser to have someone else oversee the beneficiary’s inheritance (to name a few reasons)
Whether a will needs to be probated depends on various factors, including the type of assets, the estate’s value, and potential challenges. While probate serves an important role in ensuring a structured distribution of assets, there are strategies available to minimize its impact through careful estate planning. Seeking legal advice is vital so that you have a plan that is tailored for your personal family situation.