What Is Probate? How Can It Be Avoided?
Probate is the process of the court overseeing the distribution of a person’s estate. It’s basically a three step process and it is a little bit expensive but really not as bad as some people think.
The first step is asking the court to appoint someone as the administrator of the estate. It could be the executor if the person left a will naming someone. That person then could be appointed as executor. One thing that people don’t always know is that even if there is a will, the estate will be subject to probate and will have to go through that process anyway.
The second step is for the administrator to get control of all of the assets and to pay any valid debts of the estate. During this process, the assets would be sold such as the family home, vehicles, or any other real estate. Investments would be liquidated and converted to cash. The only reason that things wouldn’t be liquidated is if the will said that they should be given to a specific person. Otherwise all assets will be liquidated and that money will be used to pay any debts of the estate. That second period has to take at least four months, which is the statutory waiting period for any creditor to file a claim.
The third phase is reporting to the court what you have done as an administrator and asking for permission to distribute any remaining assets and set forth an amount to go to each of the beneficiaries. At each step in the process, anyone who has any interest in the estate is entitled to notice at every phase of the accounting and appraisal of the assets so that they have a clear understanding of what’s going on.
What Are The Top Misconceptions That People Have About Probate?
The biggest misconception people have about probate is regarding the cost. Attorney Cloyd Havens has asked people what they think it costs to probate an estate and the estimates go as high as 50%. However, in reality it usually costs somewhere in the neighborhood of 8% to 10% of the value of the estate. It still can be a lot of money but it is certainly not as much as people think. Therefore it is good to try and avoid probate but it’s not as bad as people think.
Another misconception people have is that they can do it themselves. There are so many local rules with the different court systems and there are many things that have to be filed and notices that have to be given that just aren’t clearly spelled out. To try to learn this while doing probate for the first time would be extremely difficult and cause a tremendous amount of frustration.
What Are The Basic Components Of An Estate Plan?
There are several basic components of an estate plan. The primary part of an estate plan is the trust. This is a document that creates a separate legal entity, almost like a corporation, that will own the assets of the family. Because it is the owner of the assets if the Trustor, or the person creating the trust, becomes incapacitated or when they die, they won’t own the assets. This is why the trust is the primary piece that helps us avoid probate.
We also do pour over wills which simply say if there are assets that should have been in a trust during my lifetime but I didn’t do so, then I would like for them to be poured over or transferred into the trust at my death. As long as those assets that are poured over in a will are less than $150,000, then we can do that informally.
There is also an advanced healthcare directive. This a document where a person names someone to make medical decisions if he or she can’t make them and gives instructions about several things such as end of life decisions as well as decision regarding final arrangements for burial or cremation.. Advanced healthcare directives can also give instructions about long term care decisions and can also include instructions regarding organ donations upon death.
The general power of attorney is a document where someone names a person who can sign on his or her behalf on administrative matters should he or she become incapacitated. This works very well for things like tax returns, dealing with creditors, with pension plans or retirement plans; types of assets that we would not put into trusts.
If it’s a married couple, we do a community property agreement. This is done so that when they transfer the assets into a trust, when one person dies, they maintain their capital gains tax exemption for married couples that they would otherwise lose. This is done to prevent the loss of any tax benefits.
We also handle deeds that transfer any real property such as homes or real estate into the trust naming the trust as the owner.
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