Anyone with a basic understanding of estate planning knows that one of the primary benefits of having a living trust is to avoid probate. Nevertheless, unless you are an attorney or have been personally involved in a probate proceeding in the past, few people have an understanding of what probate really is and why it is not recommended for most estates.
Probate is a court supervised process for administering and (hopefully) distributing a person’s estate after their death. When a person dies leaving property (especially real estate) in their name, the only way to transfer ownership from the deceased owner’s name to the name of their heirs is for a court to order the transfer through the probate process. In other words, since a deceased owner of property is no longer around to execute deeds, only a court can effectuate the transfer of real property after the owner dies, and probate is the legal process by which this would occur.
Many people have the misconception that having a will alone avoids the probate process. A will merely informs the world where you want your property to go, but probate is still needed to carry out the wishes expressed in the will (since even with a will, property stays in the name of decedent). Only a trust can avoid probate because once you have a trust, all of your assets are then transferred to the trust during your lifetime thereby avoiding the need for a court to do so.
There are plenty of stories of heirs for high profile individuals who have had to suffer through the probate process, from Jimi Hendrix to Heath Ledger, and now most recently Prince. For some estates, probate might be a good alternative, but consider these five reasons why you would want to avoid having your estate pass through probate:
- Probate is a public proceeding. As with any court proceeding, the court hearings and documents in probate are completely open to the public. For example, anyone who is curious about James Gandolfini’s (aka Tony Soprano) will can easily find this online, which contains detailed information on his finances, property, and his family members. In fact, probate courts typically require filing an inventory and accounting of the entire estate with the court. Anyone can simply visit the probate court and view or copy probate records, and some courts even make this information available online. If you have any interest in keeping your finances, property or family members secret upon your death, you want to avoid the probate process.
- The personal representative has to formally notify all your creditors of your death. One of the primary purposes of probate is to afford creditors the opportunity to have their debts with the decedent settled through the probate process. In fact, one of the first steps in the probate process is to specifically notify all known or reasonably ascertainable creditors that decedent has died, and therefore, if they want anything, they need to act now. Once a creditor has been notified, they merely need to file a claim with the probate court within the time allowed and will be entitled to payment from the probate estate (assuming it is not contested and there are assets are available to pay).
- Probate is a court supervised process. In many cases in probate, court approval is required at every step in the process, from appointing the initial personal representative for the estate, proving the will (if any), confirming dispositions of property, approving the inventory and accounting of the estate, settling disputes between creditors or beneficiaries of the estate, and final distributions of the estate. The process is fraught with rules and procedures that must be followed in order to obtain court approval. For example, selling real estate through the probate process may entail securing formal appraisals, offering the property for sale through a court bidding process, and ultimately obtaining court approval for the final sale. By contrast, since a trust is usually administered without any involvement of a court, the makers of the trust can be very flexible in how their property will be distributed without the need for a lot of formalities that a court would require.
- Probate involves time and delay in administering and distributing the estate. Given all the court procedures and requirements of administering a probate estate, even the most simple and uncontested probate proceedings can take many months to a year. If there are claims, disputes, or other complications in the proceedings, the process can take much longer. As an example, it was reported that probate estate for country singer John Denver lasted over six (6) years, meaning that his heirs had to experience years of delay before they were able to receive what was their rightful inheritance. As courts continue to report reduced funding and large caseloads, increasing delays will likely continue to be part of the probate process.
- Probate usually involve significant attorney’s fees. Although parties certainly have the option to represent themselves in probate, due to all the procedural requirements in probate, which is usually quite different from the procedures in a typical lawsuit, attorneys are usually recommended in all but the most simple of probate estates. Attorney’s fees are usually paid from the estate based on a percentage of the value of the estate. For example, in California, the fees to administer an estate with a single property valued at $300,000 would be approximately $9,000. If there are complications in the estate administration that requires extraordinary services, the fees would be even more. Compare this with our typical estate planning services whereby we can usually set up the entire estate plan for around $1,500 and avoid these unnecessary attorneys’ fees for a probate.
This is not to say that probate is undesirable in every case. Indeed, since probate is a court process, it might be a good idea in some cases especially if the estate wishes to have the finality that a court order provides. For example, if an estate wishes to reduce the timeline for which creditors can pursue the estate, a probate may be advantageous since creditors have only a limited time window to file their claims. If heirs having an interest in the estate fear the possibility of ongoing disputes over assets in the estate, a probate could be the ideal forum for having those disputes decided once and for all by a binding court decision. However, in most cases, the time, expense, complexity, delay and emotions from having to deal with attorneys and courts is not the type of legacy that we would like to impose on our family members who are still mourning the loss of a loved one, and one just needs to google all the celebrity estates that had to go through probate as testament to why probate court is not where you would want your loved ones to have to go after you die.