When a person passes away, everything from paying debts, transferring title to beneficiaries and paying taxes must be handled. To the extent someone who dies (a decedent) owns property in his own name, like a bank account or a home, the property must go through “probate,” to get into the hands of the next rightful owner. Whether you have a will or not, probate will be required if assets you own don’t pass by operation of law.
What is "Operation of Law"
Many things we own go to our beneficiaries somewhat automatically when we die. For example, if you name a beneficiary to receive life insurance or your IRA funds, those designation forms alone provide legal authority to get your assets to their rightful beneficiaries. If you own real estate in joint names with your spouse, your spouse inherits the property. In all these situations probate is not required to pass the property to beneficiary. It happens by operation of law. Probate is needed to pass assets which do not pass by operation of law.
A Will Goes Only So Far
If you have a will, you can specify who gets what with respect to only certain assets. For example:
- If you own real estate in joint names, the surviving owner may
get the property by virtue of the title on the deed. It doesn’t pass under your will.
- For IRA, pension and 401(k) assets, the person named on the
designated beneficiary form inherits your account. If you don’t name a
beneficiary, then it does pass to your estate and will go through probate.
- If your will provides that your significant other gets your IRA
account, but your beneficiary designation form says your child gets it, your
child will get it.
If you don’t have a will, the state’s laws of intestacy provide a default setting as to who gets what. Typically for married people who die without a will, their spouse and children inherit. For single people, the estate passes to parents and siblings. A will can only pass assets which don't pass by operation of law.
What Probate Entails
Probate starts when a person who represents your estate petitions the court for permission to be in charge of winding up your affairs and distributing assets. As part of the process, takers under your will are informed and if you don’t have a will, those who inherit by law are notified.
Once a probate petition is filed, your will becomes a public document. The heirs or beneficiaries notified will learn:
- That they will or will not get something under your will.
- That they can object to the appointment of the executor or
- That they can object to the validity of the will.
Wrinkles may occur if there are minor beneficiaries or family members cannot be notified. Even if all goes well, it can take several months to get the court’s blessing for the executor or administrator to get started.
Once a person is named as executor or administrator, the process begins: gathering assets, making sure they are safe from theft or damage, paying debts, paying any income or estate taxes, distributing the balance to your beneficiaries. Typically a final accounting is prepared to show what came in to the estate, and what was paid out and that all accounts are settled.
What Does Probate Cost?
If you read through the paragraphs above and imagine that an attorney is involved in every step, you have an idea of how expenses cumulate when it comes to probate. The fees for filing a probate petition in NY are based on the size of the estate and are not especially onerous in New York. For example, fees start at $45 for a $10,000 estate and top out at $1250 for an estate worth $500,000 or more.
Why Avoid Probate
The main reasons people want to avoid probate are to: (1) keep their private affairs private, (2) avoid the cost and hassle of notifying family members and (3) avoid potential disputes about whether the will is valid or who got what. In many situations, the process can be straightforward and relatively simple. But if there are any glitches in your family tree, difficult relationships among family factions,
minor beneficiaries and the like, well then avoiding probate may make sense.
A Living Trust Instead of Probate
One way to avoid a large drawn out probate is to prepare a simple will which leaves everything to your “living trust.” The trust is a legal document which creates a separate legal entity and spells out how you want your assets managed and distributed. Unlike a will which is open to the public once it is offered for probate, the contents of your living trust are not made public.
To have the living trust as an effective “will substitute” it is important that the trust become the owner of all of your assets. This involves changing record title to your real estate, bank accounts etc. This involves some ongoing paperwork and changes on paper how your assets are owned. But it is the best strategy available to avoid probate and make sure your assets pass as you wish.
A future article will go into more detail about creating a living trust to avoid probate. Feel free to give me a call if you have questions about an estate plan for you. (914) 923-1600.