Probate is the process through which after death your possessions are passed on to whichever individuals and charities you name in your will. If you don’t have a will, your property passes under what are called the rules of “intestacy” which means that state law determines who gets what — essentially your closest relatives.
The Probate Process
The probate process involves the court appointment of an “executor” or “personal representative” to take possession of your property, pay bills and taxes, and ultimately distribute the estate property as directed in your will or, in the absence of a will, as provided in the intestacy law. The law requires that a list of the estate property — an “inventory” — be filed with the court and that at the end the personal representative file an accounting detailing what happened to all of the property listed on the inventory, including recording all expenses paid.
These days, when someone dies, most of his property does not pass through probate and avoids these reporting requirements. The following types of property do not pass through probate:
- Jointly owned property, whether bank accounts or real estate, passes directly to the surviving joint owner or owners.
- Retirement plans if the owner has named a beneficiary or beneficiaries.
- Life insurance, again, assuming the owner has named one or more beneficiaries.
- Payable on death accounts, where the bank or financial institution permits the owner to name who will receive the property at death.
- Property in trust.
For most of this non-probate property, the surviving joint owner or beneficiary simply needs present a certified death certificate in order to establish ownership. With respect to trust property, the trustee follows the instructions in the trust instrument as to whether to distribute the trust assets or to continue to hold them in trust for the surviving beneficiary or beneficiaries.
Putting the Probate Process in Perspective
All of this is much simpler and quicker than the probate process. So, why not make sure that all of estate property avoids probate? In most cases that would make matter easier for your heirs, but it should be kept in perspective. First, be aware that probate is only a piece of estate settlement. Event without probate, someone is going to have to take care of the following;
- Paying bills.
- Cleaning out a house or an apartment.
- Selling any real estate that the family doesn’t want to keep.
- Distributing tangible items, such as furniture, jewelry and artwork.
- Filing the final income tax return.
- Filing an estate tax return if the total value of the estate, including both probate and non-probate property, exceeds $1 million (the Massachusetts threshold).
Second, there are some advantages to probate despite the cost and trouble. These include:
- The public nature of the process helps avoid improprieties and reassures beneficiaries who may suspect improprieties.
- Often it’s important to give one or more people as executors the legal authority to take actions on behalf of the estate, which only occurs through a probate court appointment.
- Probate court can also be a good forum for resolving disputes among heirs.
Third, either a will or a trust can help make sure that all beneficiaries share equally in an estate. Using joint accounts and beneficiary designations exclusively can sometimes lead to unequal estate distributions if some beneficiaries are named on some property and others on other accounts. This typically occurs with joint accounts and treasury notes where parents name different children on different accounts or treasury certificates. A trust is generally a much better mechanism for estate distribution since it can be the owner of the accounts and can provide that everyone share equally in the end.
In short, avoiding probate can avoid some hassle and expense for your heirs. But in the context of all the other steps that must be taken when someone dies, the extra cost and delay of probate often is not as great as some purveyors of trusts have portrayed it. That said, trusts still do provide real benefits, for management in the case of incapacity as well as probate avoidance, but that should be another blog post.