Understanding Probate: What It Is, What Assets Go Through It, and How to Navigate It
Understanding probate is part of determining what estate planning strategies to put into place. Many people do not know what probate is other than that they should avoid it at all costs. Before diving into complex and expensive strategies, you should know what it actually is, what it means your for assets, and what it means for your heirs.
Probate is a legal process that occurs after a person passes away. It involves validating the deceased person’s will (if one exists), settling their debts, and distributing their remaining assets to beneficiaries. Depending on the complexity of the estate, probate can be a straightforward process or a lengthy, costly legal ordeal. Understanding what probate entails, which assets go through it, and why you might want to either embrace or avoid it can help in estate planning.
It’s important to note that probate laws are very localized. This article will review general probate concepts, but probate is different state by state and even county by county within a state.
What Is Probate?
At its core, probate is the process of administering the estate of someone who has passed away. It includes:
- Validating the will – If there is a will, the court confirms that it is legitimate.
- Appointing an executor – The will typically names an executor, the individual responsible for carrying out its instructions. If there is no will, the court appoints an administrator.
- Inventorying assets – The executor or administrator identifies and catalogs all assets belonging to the deceased.
- Paying debts and taxes – Outstanding debts, including taxes, are settled using the assets in the estate.
- Distributing assets – The remaining assets are distributed to beneficiaries according to the will or state intestacy laws if no will exists.
Which Assets Go Through Probate?
Not all assets are subject to probate. The distinction largely depends on how the assets are titled or structured. Certain assets automatically transfer to beneficiaries outside of probate. See 5 Methods of Estate Transfer – Gilbert Wealth for more information.
Assets that Go Through Probate
- Solely owned assets: Any assets solely owned by the deceased without a designated beneficiary.
- Real estate: If held individually or as tenants-in-common, real estate goes through probate.
- Bank accounts: Accounts in the deceased’s name alone (without joint ownership or designated beneficiaries) are subject to probate.
- Personal property: Items such as vehicles, jewelry, art, and other tangible items not assigned to a beneficiary.
Assets that Bypass Probate
- Jointly owned property with rights of survivorship: This could be a home or joint bank account that automatically passes to the co-owner.
- Retirement accounts: Accounts like IRAs or 401(k)s with designated beneficiaries are passed directly to those beneficiaries.
- Life insurance policies: As long as a beneficiary is named, the death benefit is paid out directly without going through probate.
- Payable-on-death (POD) and transfer-on-death (TOD) accounts: These bank and brokerage accounts allow assets to transfer directly to a designated beneficiary.
- Trust assets: Assets placed in a living trust bypass probate and are distributed according to the trust’s terms.
Why You May Want Assets to Go Through Probate
While many people view probate as something to avoid, there can be reasons to allow certain assets to go through probate:
- Court supervision: Probate offers a structured, court-supervised process to settle the estate, which can help prevent disputes among beneficiaries or creditors.
- Clearing title: For some assets like real estate, probate can help clear title issues and transfer ownership securely.
- Protection against creditors: Probate provides a formal timeline for creditors to make claims. Once the estate is settled, creditors cannot come after the beneficiaries for unpaid debts.
- Transparency: Because probate records are public, the process ensures a level of transparency that can help prevent legal disputes or accusations of mismanagement.
Why You Might Want to Avoid Probate
Despite the potential advantages, many people aim to minimize probate because of its downsides:
- Cost: Probate can be expensive. Court fees, attorney’s fees, and executor compensation can quickly add up, reducing the estate’s value for beneficiaries.
- Time-consuming: Probate can take several months or even years, delaying the distribution of assets to beneficiaries.
- Lack of privacy: Since probate is a public process, the details of the deceased’s assets and beneficiaries become a matter of public record.
- Potential for disputes: Heirs, creditors, or other parties can challenge the will or dispute asset distribution during probate, leading to prolonged legal battles.
How Much Does Probate Cost?
Probate costs can vary significantly depending on the size and complexity of the estate and the state in which the process takes place. Typical costs include:
- Executor fees: In most states, executors are entitled to compensation for their work. These fees often range from 2% to 5% of the estate’s value but can vary by state law or the terms of the will. Of course, if an executor is a family member, these can be waived.
- Court fees: Probate filing fees range from a few hundred dollars to several thousand, depending on the estate’s value.
- Attorney fees: Probate attorneys typically charge either a percentage of the estate’s value (often between 2% and 4%) or hourly rates that can range from $150 to $400 per hour. For simple estates, a flat fee may be charged.
- Appraisal and valuation costs: If certain assets, such as real estate or collectibles, need professional appraisal, this can add hundreds or thousands of dollars to the probate costs.
Simplified Probate
The definition of a “small estate” varies by state, but generally, the value of the estate must fall below a certain threshold to qualify for simplified probate procedures. Typical small estate limits range from $5,000 to $150,000, depending on the state. Some states have even higher thresholds, while others may have additional requirements, such as no real estate in the estate. It’s important to check the specific small estate limits in your state to determine eligibility for simplified probate.
Let’s say a couple has the following assets:
- Jointly owned home: $500,000
- Joint checking account: $50,000
- Husband’s retirement account: $300,000 (with wife as beneficiary)
- Life insurance policy: $200,000 (with wife as beneficiary)
- Husband’s individual bank account: $20,000
When the husband passes away, the joint home and checking account pass directly to the wife, and the retirement account and life insurance are paid directly to her as the beneficiary. These assets, totaling $1,050,000, bypass probate.
The only asset that would go through probate is the husband’s individual bank account, which has $20,000. Since this amount falls below many states’ small estate thresholds (typically ranging from $5,000 to $150,000), the wife could qualify for simplified probate despite the couple’s large overall estate.
Summary
Probate can be both beneficial and burdensome, depending on the specific circumstances of an estate. Understanding what goes through probate and what doesn’t, and knowing how to plan ahead, can help reduce costs, time, and stress for your heirs. While probate offers a level of court oversight that may be valuable in certain cases, many people aim to avoid it to preserve privacy and minimize delays. Proper estate planning through trusts, beneficiary designations, and other tools can help manage the probate process—or bypass it altogether—ensuring a smoother transition of assets to the next generation.