Probate: The Basics
Post-Death Legal Process Slows Distribution of Assets
Caregivers helping seniors plan for the future should understand probate - the legal process that begins upon someone's death and ensures the proper disposition of the estate, even if no will exists. If the senior designates you as the estate's executor, you will need a detailed grasp of probate's functions and requirements to fulfill your responsibilities.
When a person dies, a probate court must verify the estate's assets and oversee the transfer of its property to the appropriate heirs. A probate court will:
Authenticate a will and hear any challenges to it
Make sure all property is accounted for and appraised
Make sure any debts and taxes owed by the estate are paid
Make sure property goes where the will says it should
That depends. Very small estates - $20,000 or less in most states - can be handled within weeks under a stripped-down process called summary administration or small estate probate. However, in most cases a will takes several months to a year to clear probate. The bigger the estate or the more creditors with claims against it, the longer it may take. Challenges, though infrequent, can delay the process.
Normally, the executor named in the will takes the estate through probate. If a will does not exist, the probate judge will appoint an executor or administrator. This person must locate and give the court all relevant information on assets, debts and heirs.
Although retaining a lawyer is not required, it may be necessary if legal questions arise beyond the scope of the executor's knowledge. The estate pays the legal fees and the court and document costs associated with probate, which often amount to 5 percent of the estate's total worth.
Many. Avoiding probate saves a lot of time, paperwork and money, and the heirs obtain their property much faster. Avoiding probate usually doesn't mean avoiding taxes, but some strategies accomplish both.
Avoiding probate takes planning. Among the most common methods:
Living trusts. Property put into a living trust before a person's death isn't counted as part of the estate, so it doesn't have to go through probate. The trust is the legal owner of the property, be it a house, bank account or stocks and bonds. A trustee controls the property and turns it over to the named beneficiary upon death.
Gifts of assets. Reducing the size of an estate might allow for the speedier and cheaper summary administration procedure instead of probate. Done right, this strategy also can cut estate and gift taxes. Without paying federal gift taxes, a person can give away:
Up to $10,000 a year to an unlimited number of people
The cost of tuition or medical bills paid directly to the institution
Any amount to a spouse
Any amount to tax-exempt charities
Be careful, though. Seniors shouldn't give away funds they can't afford to lose. The recipient has no legal obligation to the donor and could spend the money, give it away or lose it to creditors.
Special bank accounts. By signing a simple form, a bank client can convert almost any account to what is called a payable-on-death, or POD, account. When the holder dies, the money left in it does not have to pass through probate but goes directly to the beneficiary named in the account.
401(k) plans and IRAs. These funds pass directly to the beneficiaries specifically named in the accounts by the holder.
Joint tenancy. This is a form of joint ownership that married couples often use. When one owner dies, the other can assume full ownership of the assets, whether a bank account or a house, without having to go through probate.
Community property. A number of states offer community property protections for married couples. It means both spouses own all property accumulated during their marriage. In some but not all of these states, community property can avoid probate altogether or proceed through a streamlined process.
Transfer-on-death. Most states now allow probate-free transfers of securities; the holder simply fills out a form naming a beneficiary for each account. A few states now allow the transfer of car registrations, too.