Probate is the legal process that assures your beneficiaries will receive the property that you have designated for them. This process starts with a court validating the legitimacy of your will, the recognition of an appointed administrator, and includes the identification of your property, the settlement of all debts and taxes against your estate, and transferring the remainder to your beneficiaries. If there is no will, the court is empowered to determine who will be your heirs and receive an apportioning of your estate.
Because of the costs, potential complexities, and the duration of probate, some people choose to avoid probate using various legal tactics that are explained below. Your financial planner can be an enormous asset for you by calculating the best strategy for preserving as much of your estate as possible, augmenting your beneficiaries' best interest.
It is important to realize that probate is the legal means for distributing your wealth through your will. Assets not in your will cannot be distributed through the probate process. Some of your assets, such as life insurance, retirement plans, pensions, annuities, and individual retirement accounts (IRAs) may be distributed outside your will, and outside probate, through the beneficiary designation you made when opening your accounts.
You and your financial planner can analyze which tax strategy is best for your situation. Should you transfer some assets into a revocable living trust? If so, while alive, you could choose to be the trustee and add or remove property, or amend or terminate the trust as you wish.
But maybe that's not the best choice for you; maybe joint tenancy with rights of survivorship is better for your financial circumstances. Perhaps gifting some of your assets while alive is a good choice for some of your assets. The point is to make a deliberate choice about which process will be used to transfer your various assets, and the subsequent effect of this set of decisions on your estate taxes.
If you have planned well, there will be no urgency for immediately starting the probate process. Your family will be experiencing enough difficulties with many other issues. If your family has access to sufficient cash or other funds such as a joint bank account or a mutual fund account, probate can wait until your family can refocus.
When it's time, the first step in probate is to file an application that admits your will for review by the court, and an application to appoint your estate's executor. If there is no named executor, the court will appoint one. Upon approval of the executor, the court will issue letters of evidence of the executor so that third parties will follow your executor's instructions.
Your executor will be permitted to act on your estate's behalf with either an independent administration or with a dependent administration. An independent administration means your estate's executor can perform his or her duties without the supervision of the court; if it's a dependent administration, your estate's executor must seek approval from the court for all activity. An independent administration is only permitted if the will specifically states this preference.
Probate can be expensive. There are nominal filing fees, but attorney fees can be significant. There may also be executor fees, appraisal fees for real estate or a closely held business, and sometimes there are fees for posting bonds. Larger estates typically have more probate costs than smaller estates, though smaller estates can also become costly if there are complex issues requiring resolution such as real estate, business ownership issues, or a multitude of creditors. Probate typically consumes about 5% of the estate's value, and can take months to resolve. This is why a financial planner's services can be so valuable, settling these many complexities far in advance.
The advantage of probate is that your will and intentions are legally verified, providing the highest degree of assurance about the disposition of your estate. However, in certain circumstances that can be considered with your planner, an alternative to the potential costs and duration of probate may be a wiser choice.
Estate planning including probate is an important part of a successful exit strategy. To learn more about estate planning and probate, visit Synergetic Finance or check out author Joseph M. Maas' book "Exit Insight: Getting to Sold!" available at Merrell Publishing online