Recently we received questions about probate from two clients who remembered how cumbersome the estate process was after the death of their parents. Can it be avoided?
What is Probate?
Probate is the legal process of verifying the validity of a will in court. It involves appointing an executor, identifying and inventorying assets, paying off remaining debts and taxes, and distributing the remaining property to the rightful beneficiaries. The advantage is that it provides court supervision, which protects against fraud and resolves disputes among heirs. Disadvantages are it’s time consuming and expensive. Let’s look a bit closer:
- High Costs: Court fees, executor compensation, and attorney fees can significantly reduce the value of the estate. Depending on the state, probate can cost between 3% to 7% of the total value of the estate.
- Time-Consuming: The time differs per state, but there is nowhere that is easy and fast. In NY the process can take anywhere from 9-18 months to several years, depending on many factors that will delay your beneficiaries’ access to their inheritance.
- Lack of Privacy: Because probate court documents are public record, anyone—including creditors and scammers—can view your assets, debts, and who receives what.
- Family Conflict: The open court process creates opportunities for will contests and family disputes.
- Administrative Burden: Dealing with rigid court schedules and filing requirements adds unnecessary stress to grieving family members.
How to prevent probate?
You can prevent probate by making sure that your assets will transfer directly to your beneficiaries. How to do this?
- Most of your accounts, i.e., IRAs, 401Ks, 403Bs, pensions, life insurance policies, and the like, require named beneficiaries and will pass directly to them.
- Bank accounts, investment account and in some states, other assets, like real estate (including condos), boats, planes, cars, (anything with a title) can have Transfer on Death (TOD) designations. This is regulated by each state, but over 30 states allow this; recently New York also started allowing a TOD designation on condos, unfortunately, New Jersey doesn’t yet.
- Jointly owned property designated “with rights of survivorships” avoid probate and are transferred immediately to the survivor with the presentation of a valid will.
- Property placed into a revocable living trust pass directly to beneficiaries according to the trust’s terms.
- Personal Items: When you have a trust, your estate lawyer creates a pour-over will, automatically transferring (“pours”) assets that were not explicitly titled to your living trust into the trust upon your death and this will be distributed by the Trustee. If you don’t have a trust, for total non-real-estate assets under $50,000, a simplified court process handles everything including personal property.
Caveat: When all assets pass directly to beneficiaries there might not be sufficiently left to pay the last tax bill or any estate taxes. Discuss how to deal with that situation with your estate lawyer.
It is important to decide what you want to accomplish with your estate and know about the laws of your state. If you don’t have a will, your state will decide what happens to your possessions. This can be challenging if you have property (second home with vehicles, “toys” boats, jet skis, etc. ) in another state.
We cannot create your estate documents, but we can help you prepare for your meeting with the estate lawyer and guide you through the process in order to avoid probate.
