What Is Probate? A Step-by-Step Guide to the Probate Process
Probate is the court-supervised process of validating a deceased person’s will. It involves identifying the person’s final assets, paying last debts and distributing property to the proper heirs. And while state law ultimately determines how probate works, the process is very similar across the country. This article will walk you through it step-by-step. But first, let’s determine if probate is even required. If you want hands-on expert guidance to help your through the probate process, check out SmartAsset’s free financial advisor matching tool to get paired with up to financial advisors in your area who can best meet your needs.
When is Probate Necessary?
Probate is not always required to transfer property. Several state laws indicate that property valued below a certain amount can be passed on to heirs without probate or through a simplified version of it.
Certain accounts such as 401(k) plans, individual retirement accounts (IRAs) and pensions with listed beneficiaries don’t need to go through the probate process. The assets in these accounts will automatically transfer to the named beneficiary following the original account owner’s death.
There are also several estate-planning strategies that individuals can deploy in order to pass on property and assets without putting it through the often-costly and public legal process of probate. More on this later. But if the deceased owned a substantial amount of property or died without a will, the probate process might be needed for the proper heirs to receive their fair share.
How Does Probate Work?
Most wills name an executor, who takes charge of overseeing the probate process. This person typically has 30 days from the date of the will owner’s death to file the document with the local probate court.
If the decedent died without a will or didn’t clearly identify an executor in one, the probate court will appoint an administrator to oversee the probate process. This role often falls on the next of kin. However, a named executor or appointed administrator can always decline the role. In these cases, the court turns to someone else.
Overall, the person overseeing probate must prove to the court that the will is valid.
Validating a Will
Most state laws require an executor to file a will with the local probate court as soon after the death of the decedent as possible. This person may also need to file the death certificate as well as a petition to open probate at the same time.
Next, a probate court judge determines whether the will is legally valid. This usually involves a hearing in which all of the beneficiaries listed in the will have a right to look at the document and accept or object to their role in it. The court decides how to move forward in cases where wills are contested.
But how does the probate court figure out if the will is valid? In several cases, self-proving affidavits help create and finalize wills. The will grantor, along with witnesses, will sign off on these. In most cases, these documents hold enough weight for the court to kick off the probate process.
Once that happens, the executor receives and signs letters of authority or letters of administration. This simply means the executor legally agrees to enter the probate process and oversee matters involving the estate.
In some states, the executor must also post bond. This is an insurance policy that protects beneficiaries in the event the executor intentionally or unintentionally makes a costly error during the probate process.
Identifying Assets for Probate
Once the probate process begins, the executor must identify all of the decedent’s assets as well as their value. This usually means diving into banking and investment account statements, insurance policies, tax documents and more.
Some states require executors to provide the court with a document that details of the decedent’s assets, their value and notation on how that value was reached. This determines what’s known as date of death values.
The executor may also need to take take hold of physical property such as fine art and vehicles. Moving into real estate isn’t necessary. But the executor would have to make sure property taxes, insurance and mortgage payments are properly covered throughout the probate process. The decedent’s estate can pay these and all other debts.
Contacting Creditors and Paying Off Debt
An executor must also track down any of the decedent’s last creditors. These creditors typically have a limited time in which they can make claims against the decedent’s estate. These time frames vary by state.
However, an executor can challenge these claims. The creditor may then petition the court to make a decision in the matter.
In either case, official debts must be paid off. These may include medical bills and other expenses the decedent couldn’t cover before death. Because these are levied against the decedent’s estate, passing away with major debt can take a large chunk off the assets that can legally transfer to loved ones.
Filing and Paying Final Taxes
Death doesn’t mean a clean slate from Uncle Sam. So an executor must file and pay off any of the decedent’s final taxes with estate funds. The federal estate tax can climb to as much as 40% and some states enforce their own as well. Estate taxes are typically due within nine months following the owner’s death.
However, one can reduce the size of his or her estate during life in order to transfer property tax-free. More on this later.
Distributing Property
An executor usually needs to provide the probate court with documentation detailing every transaction he or she engaged in during the probate process thus far. These feelings would also detail the exact value of the remaining estate. However, some states allow the executor to waive this requirement if all beneficiaries believe it’s not necessary.
After the court confirms all debt and taxes have been paid, it can move forward with dividing the what’s left of the estate to the proper beneficiaries the will has listed.
If a person died without a will, the court typically divides assets and property among immediate family members. Someone who dies without a will has passed away “intestate.” The surviving spouse, if any, typically takes priority.
Avoiding Probate With a Revocable Living Trust
As you can see, the probate process often chips away at the decedent’s estate before the proper heirs receive their due property. However, there are several estate-planning techniques one can engage in during life in order to shield property from the probate process.
One example is opening a revocable living trust. These accounts can hold virtually anything of value from your bank accounts to physical property such as vehicles. But when you die, the contents of your trust effectively leave your estate and are no longer your property. Thus, these assets don’t have to go through the probate process.
You can explicitly detail how you want to divide this property among heirs in your trust document. With a revocable living trust, you can also designate a trustee to manage trust assets and distribute property to the proper beneficiaries after your death.
In addition, you can give away property and assets as gifts during your lifetime. For 2019, you can gift up to $15,000 to any individual without worrying about the gift tax. So you can give up to $15,000 in cash or other property to each of your three children, for example. But even if you gift more than $15,000 to one person during the year, you’d generally just need to report it on Form 709. It doesn’t mean you have to pay the gift tax. You trigger that when you breach your lifetime gift and estate tax exclusion. Recent tax laws shifted that to more than $11 million. With careful estate-tax planning, a married couple can protect about $22 million in gifts to loved ones without incurring a gift tax.
Bypassing Probate With Pay-on-Death Accounts
You can convert several of your banking accounts into pay-on-death accounts. You typically just need to sign a form from your financial institution and designate a beneficiary. Upon your death, this account transfers directly to the beneficiary without having to go through the probate process.
Some states also allow you to convert security and vehicle registrations as well as real-estate deeds into pay-on-death property.
The Takeaway
Probate may sound intimidating, but it shouldn’t be a daunting process. A detailed will that designates an executor can ensure the proper transfer of your property to the right heirs after you die. The probate process isn’t always necessary, however. So it’s important to seek help from a lawyer to see how state law affects probate in your area. Seeking a financial advisor for guidance around estate-planning can also protect your property from probate and taxation.
Tips on Estate Planning
A revocable living trust can help secure your property from probate, but it’s not the only kind of trust around. Look into how different trusts work to see which kind is right for you.
The probate process can be complex depending on your situation. This is why it’s important to seek the help of a professional financial advisor. We can help you find one with our advisor matching tool. It connects you with up to three local advisors based on your answers to some simple questions about your financial goals.
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