What Is Probate and Why Should I Avoid It?
Key Points – What Is Probate and Why Should I Avoid It?
- What Factors into the Probate Timeline?
- Is a Will Enough?
- Looking into the Impact of a Trust
- The Importance of Family Meetings
- 6 Minutes to Read
What Is Probate and Why Should I Avoid It?
What is probate and why should I avoid it is a big two-part question. First, let’s tackle “what is probate?”
The definition of probate: the fact of officially proving that a will (= a legal document that says what is to happen to a person’s property when they die) is correct according to the law.
Probate is the process of collecting your assets, paying your debts and taxes, and transferring your property, at your death, to your heirs. We’re going to explain how probate can be a very long and tedious process, which is just one reason why you want to avoid it.
We’ve come across many people who think that having a will means that they’ll avoid probate, but that’s simply not the case. If you only have a will, your estate is actually guaranteed to go through probate. Let’s look more into why that is as we break down what probate is for two demographics—decedents with a will and decedents without a will.
What Is Probate for The Beneficiaries of a Decedent with a Will?
Let’s start by discussing what probate is for the beneficiaries of a decedent with a will (also known as a testator). When the testator dies, the person who has been designated as the executor of the will files papers to the local probate court. At that time, the executor validates the will by presenting lists of the testator’s property, debts, and what the testator’s beneficiaries are inheriting.
While dying obviously isn’t fun to think about, it’s critical to create a will, at a minimum, while you’re still in good health. This way there are no doubts about your intentions of what you want your legacy to look like in terms of who inherits your assets.
However, even if you have a will that clearly lays out how you’re distributing your assets to your beneficiaries, you can’t avoid probate. This is one of the bigger misunderstandings of financial planning because a lot of people think you can avoid probate if you have a will.
How Long Can Probate Take?
Just like how no two financial plans will be the same, no two wills will be the same. That means that the timeline of probate proceedings can widely vary. If you don’t have many assets, pass away with little to no debt, and didn’t have a very big family, your will might go through probate a bit quicker than someone who had a lot of assets, a lot of debt, and a big family. Most states have exemptions at certain asset levels, so make sure you’re aware of potential exemptions in your home state.
How long will it take to collect the testator’s property, creditors to file claims, and heirs to be located? Those can all impact the probate timeline. If there is litigation or contested claims, an extension of probate proceedings may occur.
Another big factor is where you live. Different states have different guidelines on probate proceedings, so make sure you know what those are for your home state. And what if you have real estate in multiple states? Probate will be required for each state that you own property upon your death.
“Just like all dogs go to heaven, all wills go through probate. So if you want to make sure your estate goes though probate then only have a will!” – Dean Barber
Is a Will Enough?
At this point, have you started asking yourself if having a will is enough? Is a will enough and what is probate are questions that can go hand-in-hand with each other. As you can see, there can be a lot of surprises with probate even if a will is in place. This is why you may need a trust as well. We’re going to elaborate on that shortly, but we do want to explain why having a will is still much better than having nothing in writing about how you want to distribute your assets to your beneficiaries.
What Is Probate for The Heirs of a Decedent without a Will?
Probate gets much more complex for your heirs and be more costly if you don’t have a will at the time of your death. Not having a will at the time of death is known as intestate. If that’s the case, the probate court decides how your assets are passed on to your heirs. So, if you want the courts to decide who gets what, then just do nothing.
This process usually begins with an administrator acting as the executor. In most cases, the decedent’s assets will be dispersed between their surviving spouse and children.
More often than not, people care a lot about their legacy and how their assets are passed on once they’re gone. And even if you don’t care too much about who gets what, it’s important to look at what probate is from your heirs’ perspective(s). Do you want them to be fighting over your assets and/or inheriting a messy tax situation after you pass on? We’re guessing probably not.
How Can You Avoid Probate?
We’ve gone through answering what probate is, but notice that the headline is a two-part question, What Is Probate and Why Should I Avoid It? Well, we’ve explained why you should avoid it, but we still need to discuss how you can avoid it.
When it comes to 401(k)s, IRAs, pensions, etc., those don’t need to go through probate since the decedent will have already designated beneficiaries for those accounts. However, it is critical that you keep your beneficiaries up to date! That beneficiary form trumps a will or a trust. You don’t want your heirs at odds with each other over those types of assets. It can be avoided by simply keeping your beneficiaries current.
Avoiding Probate Via a Trust
This gets back to our point about a will not always being enough and needing a trust. Revocable living trusts were created so that people can avoid probate. While the assets specified in a will go through probate, assets specified in a trust will go directly to your loved ones.
However, there’s one mistake that people make that we want to point out. If you name your estate as the beneficiary, that will also cause probate even if you have a trust.
When making a trust document, make sure to transfer the property’s title to the trust. It’s common for people to designate themselves as the trustee. That way they will maintain complete control of the trust’s property. Creating a trust can be a fairly simple process as long as you’re working with a qualified estate planning attorney or professional.
Advantages and Disadvantages of Trusts
Having a revocable living trust also gives you the opportunity to amend the trust document while you’re still living. A trust allows you to keep the details about your assets private whereas they become public within a will because probate is public record.
While avoiding probate and keeping the records of your assets private are two big advantages of trusts, there are some disadvantages as well. They’re more expensive than wills due to all the legal assistance that’s required to establish a trust. Just like with a financial plan, you can’t take a set-it-and-forget-it approach with trusts. You need to review your trust at least once a year and update it as necessary.
We could go into more specifics on advantages and disadvantages of wills and trusts, but for the sake of this article, we’re simply focusing on what probate is and why you should avoid it. When it comes to avoiding probate, you need to have a trust.
Whether you’re creating a will or trust, one thing we can’t stress enough is communicating your legacy wishes with your loved ones. Don’t wait until your health starts declining and/or mental capacity to do this. If you’re looking for a way to brighten the mood for what can become very tough conversations, we highly suggest having family meetings. The purpose of them is to simply communicate what you have and who is getting what so that there aren’t any big surprises about it once you pass on.
Obviously, it’s great for any family gathering to happen in person. These family meetings can be a lot more fun if you have them as part of a family vacation. But thanks to the advancements in technology, family meetings can always take place virtually as well. Ideally, family meetings will take place at least annually since that is how often you should be reviewing your beneficiaries.
Do You Have Questions About What Probate Is and Why You Should Avoid It?
We hope that we have given you a better understanding about what probate is and why you should avoid it. If you’re looking at this from a personal perspective and you don’t care about paying big fees and having your entire estate be public, don’t worry about probate. But why drag you heirs through the pain of probate when it is easily avoidable?
Estate planning, or as we like to call it family financial planning, is such an important part of the financial planning process. It’s critical to not only have a fluid plan that not only takes you to and through retirement but gives you the peace of mind in your final years that you’ll leave the legacy that you want.
It’s also critical to work with a team of professionals as you’re building out and continuously updating your plan. At Modern Wealth, we even have estate planning specialists to assist with your estate planning needs. So, when we say that we’re here to answer questions that you have regarding what probate is and why you should avoid it, we mean it.
If you have any questions about probate, estate planning, or building your financial plan, let us know. You can schedule a 20-minute “ask anything” session or complimentary consultation with one of our CFP® Professionals by clicking here. We can meet with you in person, by phone, or virtually—whatever works best for you.
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Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.
The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.