If you have any experience with estate planning, you’ve heard about probate, most likely in the context of avoiding it.
But what is probate, exactly? And why is it often a “dirty” word in estate planning? In short, it’s the legal process that plays out after you die. It’s often recommended you avoid it because it can take time, it can be costly and it’s usually a public process.
That said, probate isn’t always something you need to (or can) fully avoid. But there are ways to ensure the process is, at the very least, streamlined. Typically, this is done by creating a Last Will and Testament or funding a Revocable Trust.
In this article, we break down what probate is, what you need to know and how a will and trust impacts the process.
What is probate and how does it work?
Probate is the legal process involving a court after someone dies to oversee the administration and distribution of the assets in their estate. Assuming the person has a will in place, the typical probate process includes:
- Filing the deceased person’s (the “Testator”) will with the court to validate it.
- The court officially appoints the executor (sometimes referred to as a “personal representative”) named in the will.
- The executor takes an inventory of all assets in the estate. Some states also require a formal appraisal of all, or certain, assets.
- The executor notifies any creditors and beneficiaries about the person’s passing as well as the existence of the will and the probate process.
- All outstanding debts brought forward through creditor claims, such as credit card balances, are paid by the executor from the estate in addition to filing and potentially paying income and estate taxes.
- The court resolves any disputes or disagreements among beneficiaries.
- Finally, all remaining assets in the estate are distributed by the executor to the beneficiaries named in the will and they submit a final report to the court to close out the estate.
Voluntary administration for smaller estates
For smaller estates, many states offer an expedited process sometimes referred to as “voluntary administration.” This allows for a simplified, less formal process but still requires court oversight.
There may be fewer steps involved and it can be more of an administrative process than a legal one.
While voluntary administration can be a less complicated process, it is still technically considered probate.
How probate works without a will
The steps above are how the probate process plays out if there’s a will in place. Without a will in place, it will follow similar steps but is likely to be even more complicated and drawn out.
Dying without a will is known as intestate. If a person dies without a will, their assets are distributed according to their state’s intestacy laws, a process overseen by the court. Typically, this will follow the hierarchy of familial relationships, prioritizing spouses and children first, then parents or siblings and so on.
When someone dies intestate, the court appoints an administrator to manage the estate in place of an executor named in the will. The court may choose to appoint a surviving spouse or close family member but it is ultimately the court’s decision.
Reasons to avoid probate in estate planning
There are three main reasons you should avoid probate or at least streamline the process as best as possible: it can take a long time, it can be costly and it's a public process.
How long does the probate process take?
Courts are notoriously slow. Probate can take months or even a year—sometimes even longer. Anyone with an interest in the estate can contest it. Even those that aren’t named in the will, but believe they should have been, may be able to contest it if they claim the will was created fraudulently or under the influence of someone else.
There is also a mandatory notice period for creditors that often lasts around six months. During this time, creditors are able to come forward and file claims against the deceased person’s estate. Assets typically cannot be distributed to beneficiaries until this process is completed.
Even if nobody contests the will and the process is as smooth as possible, it’s likely to take at least a few months before beneficiaries receive any assets.
How much does probate cost?
Probate can be an expensive process and the costs can reduce the value of the estate, ultimately leaving less to pass onto the beneficiaries.
Potential costs include attorney fees, court filing fees, executor or administrator fees and asset appraisal fees. Additionally, there could be costs associated with filing tax returns or selling property or assets, if necessary.
For smaller estates, especially, even moderate probate fees can eat into the estate’s value, seriously cutting into any inheritance designated for beneficiaries or even for charities.
Is probate a private process?
The probate process is often a public one. This is true even if you have a will because they must be filed with the court. That means that everything contained in the estate and/or the will becomes part of the public record, including who inherits what, the value of the state, debts and liabilities and even any family disputes.
Most people probably don’t want much of this information public, and doing so could create further complications. For example, making details of the estate or will public could invite people to contest its details.
Trusts, on the other hand, typically keep these details private, though there are exceptions detailed below.
How can you avoid probate?
In short, having a Revocable Trust is the most likely way you can avoid probate.
Assets passing through a will almost always need to go through probate. That’s because it’s a legal document that doesn’t actually have any legal effect until you die and then a court signs off that it's valid.
Having a Revocable Trust, on the other hand, is like having a legal agreement with yourself to hold assets in the name of the entity. If you then transfer assets to that entity, that agreement dictates what happens to those assets when you die, not the court. Meaning, you will likely bypass probate by having a fully funded trust.
However, there are other ways to avoid probate as well. If assets pass to an individual automatically as a result of a beneficiary designation or joint ownership with rights of survivorship, these assets likely will avoid touching the probate process.
Common probate pitfalls
While having a Revocable Trust means your estate is likely to avoid probate, there are still situations where you risk entering probate with a trust.
The most common risk with a trust is that it’s not funded properly. If any assets aren’t properly transferred into the trust, those assets may go through probate.
One common example is out-of-state properties, which are often overlooked when funding a trust. If you own real estate in any other state(s) than where you legally reside, those properties may require a separate probate process. This is known as ancillary probate.
Revocable Trusts are often paired with a Pourover Will to “catch” assets not in the trust. But just like a Last Will and Testament, the Pourover Will must go through the probate process, along with any assets it “catches.”
Is it best to choose a will or trust to avoid probate?
While probate can come with some significant drawbacks—associated costs, time delays and a loss of privacy about the details of the estate—it doesn’t necessarily mean it should be avoided at all costs.
While a will is subject to probate, it still may be a valid choice for many people. It’s a simpler and more straightforward process to create one, and in some states it may be more cost-effective than a trust.
A will also allows you to name guardians, detail how assets should be distributed and name an executor that you trust to manage your estate after you pass.
A Revocable Trust, on the other hand, can cost more upfront. It also involves funding the trust with your assets, and may involve retitling certain assets like your home. If it’s set up and funded properly, however, you’re more likely to bypass the probate process.
A will likely makes sense if you have a smaller estate or aren’t concerned about aspects of probate, like delays or privacy issues. Otherwise, a trust is the best choice to avoid probate.
No matter the case, everyone needs a will. As mentioned above, if you create a trust then you’ll typically have what’s called a Pourover Will, which is a will that directs all assets to the trust in the event a probate is necessary for any assets. This type of will acts as “clean-up” in the case assets inadvertently did not get funded to the trust.
Ultimately, the decision for which type of estate planning document you want also comes down to associated costs of funding a trust at the front of the process versus paying probate costs out of your estate after you pass. Either way, having a Last Will and Testament or a Revocable Trust in place is always recommended to streamline the probate process or avoid it altogether.
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