D E A T H  P R O B A T E

What Is Death Probate?
When you think about it, probate is not difficult to understand. At your death, your assets need to be distributed to your heirs, your debts need to be paid and any loose ends need to be looked after. Since you can not sign the deeds, write the checks or handle your business affairs, the probate court takes over those duties. The probate process is a long, complicated and bureaucratic nightmare for most families. Here are the five basic steps to settling an estate:

Step One:
Filing Petition and Gathering Material
A formal written petition to the court along with a filing fee must be submitted to the court to start the probate process. One of the probate court's first jobs is to approve or appoint someone to handle the affairs of the estate. This person is called the executor, administrator or personal representative depending upon the rules of the state and whether the decedent died with or without a will. To keep things simple, we'll call this agent of the estate a "personal representative." Generally, the first thing the personal representative does is hire an experienced probate attorney. Although having an attorney is not always a legal requirement, it has become a practical necessity because probate paperwork and filing procedures can be very complex.

Step Two:
Publishing Notice to Creditors
The second major job of the probate court is to order that the decedent's creditors be notified so that they can present their claims to the court for payment. This requires the time-consuming task of cataloging all of the decedent's liabilities. The creditors are notified either by notices in the local newspaper or directly by mail. The law sets a time that the probate proceeding must be left open to allow creditors the chance to present their claims. In most states, the creditor period is several months long.

Step Three:
Inventory and Appraise Assets
During probate, all of the assets in the estate are usually frozen so that an accurate inventory and appraisal can be made. This means that during this period none of the assets can be distributed or sold without written permission from the court. The court will often require formal written appraisals for many items, such as real estate, antiques, collectibles, automobiles, furniture and other valuable assets. Appraisal fees can be expensive and, like all expenses, are paid for out of the estate.

Step Four:
Payment of Debts, Claims and Taxes
Once all the debts and claims have been submitted and approved, they are presented to the court for approval to pay them from the assets of the estate. Some estates may also have death tax liability and they must stay open until those taxes are paid. During the entire probate process, disgruntled heirs or those who disagree with the provisions in the will can bring a lawsuit in the probate court. These suits are called will contests. They can hold up the distribution of the estate and are often used to intimidate heirs into settling cases that have no merit.

Step Five:
Final Distribution and Closing of Estate Finally, after the court is satisfied that all legal requirements have been met, it will order all debts, claims, taxes, attorney’s fees and the personal representative's compensation and any other miscellaneous expenses to be paid. If there's not enough cash in the estate to pay these substantial claims, the judge can order that assets be sold at public auctions or estate sales. These transactions are often conducted in a depressed market or under the banner of "distressed sales". Only after all the bills are paid, will the personal representative or the probate court distribute the estate to the beneficiaries named in the will, or if there is no will, to the designated heirs at law. The court then closes the file.

Despite what probate lawyers say, probate is very expensive. One critic of the system says that the average cost is over 7% of the gross value of the estate. A full 60% of the costs goes to lawyers and 40% to personal representatives and others. One legal scholar who urges a reform in the probate system remarked that, "the cost of probate expands to consume the money available." Small estates are particularly vulnerable because even reasonable fees can eat up a large percentage of an estate's assets. There just isn't that much to go around. Remember, every dollar that goes to pay probate costs is a dollar that could benefit your family.

The way probate fees are calculated is exceedingly unfair to your family. State laws sets the probate fees that attorneys and personal representatives can charge. Many states, such as Massachusetts, allow attorneys to charge any fee that the court considers reasonable, without any limitations. Other states limit the fees to a fixed percentage of the estate. Under either method, the fees can range from 4% to 10% of your family’s gross estate. Remember, probate fees are often levied at each spouse’s death. Depending on how title was held on the date of death, a married couple could pay some form of probate fees on the death of each spouse. Not only are the fees excessive, but they are often based upon a valuation of your estate which bears little resemblance to its actual value. In states that use the percentage of the estate method, probate fees are calculated on your estate’s gross value without deductions for liens or encumbrances. This means that if you have property worth $100,000 but owe $90,000 to a bank, or some other financial institution, your probate fees will be based on the full $100,000, not the $10,000 equity interest you actually own. As you can see, this valuation method unfairly increases the size of your estate and results in the payment of larger fees.

The slow progress of your estate through probate can be very frustrating for the family. Although this complex process usually takes at least one and a half years to complete, many estates take years. Most people assume that their estates are simple and will glide through the system. Regardless of how simple an estate appears, it is very difficult to close a full probate in less than a year. That's because of all the steps that must be completed to the satisfaction of the court.

No. All probate proceedings are open to the public. Anyone who has an interest can pull your probate file and examine every detail of your financial life. The file will disclose an inventory and appraisal of every asset you owned at death. It reveals the name of all your creditors and amount owed to each. It lays out the names of all your beneficiaries and the amount and conditions of their inheritances. This information is often compiled and sold to those who use the information to sell products and services to vulnerable surviving family members. It can be particularly damaging if you owned a business. Your competitors will have a treasure trove of confidential business information at their finger tips in the probate file.

A probate must be instituted not only in the state where you lived, but in every state where you owned real estate. This is called an ancillary probate. Each state has probate jurisdiction of the real property located within its borders. That means that your family will have to file a new probate in each state and hire local counsel to represent the estate. Of course, this will add to the expenses that must be paid before your family receives its share.

Yes. Perhaps the most important disadvantage of death probate is that your family loses control of the estate. During probate, it may not be able to sell assets without court approval even if it needs the money. Opportunities can be lost because the cumbersome probate system moves so slowly. Your family may pay an emotional price in probate, as well. Because the process takes so long, it can be a constant reminder of the loss of a loved one. It can also foster arguments among family members who would normally seek support from one another. It's common to see family members taking out their frustration about the system on one another, especially if one of the family members has been named the personal representative of the estate.

Well, the answer is yes and no. In the case of a husband and wife who own their assets in joint tenancy, there is no death probate when the first spouse dies because title passes automatically to the surviving joint tenant. However, when the surviving spouse dies, there will be a complete probate on the entire estate. The fact that joint tenancy ownership avoids death probate at the first spouse's death is a small reward for the many other disadvantages of joint tenancy ownership. It can lead to huge unexpected liability when parents and children own assets together. In community property states it creates capital gains tax problems. It can create unintended beneficiaries and often causes gift and death tax problems. For these reasons, estate planning experts agree that joint tenancy may be the poorest estate planning tool.

No. In fact, a will guarantees probate. The word probate actually comes from the Latin and it means "to prove the will". All property that is controlled by your will must go through the probate court. Once your estate enters the probate process, it's trapped in the system until the judge releases it.

Yes. All assets transferred to a living trust completely avoid the probate process, both during your life and at your death. Living trusts are not new. They've been successfully used in one form or another since the Middle Ages. Both then and now, the living trust has required that the owner of assets transfer title from his or her name to the name of trust. This really means changing the title to your property. For real property, it means you will sign a new deed. For other assets, you sign special transfer documents changing ownership to the name of your trust. Once the process is complete, all your assets will be owned by the trust. Almost nothing will be owned by you personally; your living trust has title to the assets. This shouldn’t worry, you, however. You or you and your spouse, if you're married, have complete control of the trust while you're alive. You can amend the trust or even revoke it whenever you like. But when you die, there are no assets in your name so there's no need to go through probate. The trust already has your written instructions directing your hand picked agent, the successor trustee, about how you want your estate distributed. With a living trust, there's no need for "help" from the probate court or probate lawyers. Your trust will completely eliminate these unnecessary costs. Moreover, your estate can be distributed instantly at your death. There are no judges to consult or bureaucrats to please. Your trustee merely follows your instructions in distributing your estate according to your wishes.