What is probate and will it affect my inheritance?

What is succession is a fundamental question. Financial planners claim that less than 20 percent of heirs and beneficiaries receive their intended inheritance. Funeral expenses, unpaid debts, estate taxes, and legal fees can financially drain the estate, leaving nothing for those who remain.

This article answers the question “what is probate” and provides tips and techniques for keeping assets out of probate. Probate will process through the court system faster when fewer assets are involved.

Probate is the legal process used to validate the Last Will and Testament of the deceased and tie up financial loose ends. The last testament is the instrument used to transmit final wills and designate who should receive money, personal effects, real estate and valuables.

There are numerous options for creating a will. Preformatted wills can be downloaded online or purchased at office supply stores. Complex probate generally requires the assistance of a probate attorney or professional estate planner. Much depends on the net worth of the estate and how many heirs are entitled to the assets.

An estate administrator is designated in the decedent’s will. This person is responsible for a wide range of functions, so it is best to complement someone who is good with finances and able to cope with stress. This is of particular importance when there is family discord.

Probate begins when the decedent’s death certificate is filed with the probate court. The estate manager must create an asset inventory list and obtain property appraisals for valuable assets such as real estate, collectibles, antiques, fine art, and heirloom jewelry. Other duties include paying off outstanding debts, filing a final tax return, and distributing assets according to the directives outlined in the will. Most administrators require the assistance of a lawyer or estate planner.

The probate process usually takes between six and nine months to resolve. This can be a financial challenge for properties with commercial or real estate properties. The estate is responsible for the maintenance of real estate and the management of business entities. If the estate does not have the financial means to maintain the property or handle business affairs, the court may order the sale of these assets.

Probate provides an arena for disgruntled heirs to challenge the last will. When family members are disinherited or do not receive assets they believe are theirs by right, they can file a petition through the court.

The plaintiff is responsible for legal fees. The estate must reimburse legal fees if the court finds in favor of the plaintiff. When wills are contested, the probate can drag on for years and potentially bankrupt the estate. In most cases, when wills are contested, the only people who win are the lawyers.

Estate assets may be exempt from probate by establishing a trust. There are a variety of types and most can be customized to meet the needs of the farm. Trusts are generally reserved for estates valued at more than $100,000.

Smaller estates may use various techniques to keep assets out of probate. These include establishing transfer-on-death (TOD) beneficiaries and pay-on-death (POD) beneficiaries. TOD is used with investment and retirement accounts, while POD is used for checking and savings accounts.

TOD and POD assignments can be made by completing a simple form through the financial institution where the accounts are maintained. Economic assets avoid succession through the transfer of beneficiaries.

Real estate can avoid probate by owning the property as ‘Tenants in Common’ or ‘Joint Tenancy’.

Titled property, such as cars, motorcycles, boats, and airplanes, can be jointly titled and transferred to the beneficiary’s name at death without going through probate.

Another option to avoid probate is to give assets to loved ones while you are still alive. The IRS allows cash donations of up to $10,000 per person or $20,000 per married couple, per year. This option is often attractive for people with chronic or terminal illnesses.

Probate can be a daunting and time-consuming task. By taking the time now to execute a last will and testament and taking steps to keep assets out of probate, you can be sure that your loved ones will receive the inheritance you want to leave them.