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What is Probate and How Could It Affect Your Heirs?

Make provisions now and avoid a legal nightmare later.

You may have heard the term “probate” before, but you’re not sure exactly what it means or what the probate process entails. If so, don’t feel bad — the estate settlement process can be complicated and confusing, even for those who have been through it before.

 

What is probate?

“When you die, your property and assets need to be identified, gathered and distributed to your heirs and named beneficiaries,” says Patrick Pacheco, Executive Vice President and Trust Executive at Cadence Bank. “Your outstanding debts need to be paid and debts owed to you need to be collected. Your final income tax return needs to be filed and any taxes owed will need to be paid. If you’re a business owner, the business will need to be wound up or steps taken to ensure its continuity. It’s complicated and time-consuming, and it comes on the heels of your death. If you don’t make provisions now, you could create a practical and legal nightmare for your family.”

 

If you’ve planned ahead, you executed a will to provide direction and structure at your death. Probate is the legal process which ensures these actions take place, Pacheco explains. The process is initiated by the person designated in your will as the executor of your estate. If you die intestate — or in other words, you die without a will — the probate court will appoint a dependent administrator (court controlled) or independent administrator to manage your estate; however, the distribution of your assets will be governed by your state’s law of descent and distribution and not your wishes (if they would have been contrary to state law).

 

The first step in the probate process is validation (or invalidation) of your last will and testament by the probate court. If your will is deemed valid, the court will appoint the named executor. Then:

 

  • The executor (ideally an independent executor who can act free of court control) will swear an oath to carry out their duties.
  • They then receive Letters Testamentary, which authorize the executor to distribute your assets and property to your heirs as instructed in the will, as well as pay any outstanding debts or taxes.
  • The executor will then identify, inventory and appraise (if necessary) your property and assets and pay outstanding obligations.

 

A note about descent and distribution: State laws differ

Pacheco notes that differences in state laws with respect to descent, distribution and community property amplify the importance of executing a will and naming an independent executor you know and trust. For example, if you die married but intestate in Texas, community property law will partially dictate the settlement of your estate. Under Texas community property laws, spouses generally own all property and assets that were obtained while they were married. So if one spouse dies, half of all the community assets are confirmed as owned by the survivor — so far, so good.

 

But now the tricky part: If there are children or all the deceased’s children are of the marriage, half of the community assets and all of their separate property assets pass to the surviving spouse. In other words, surviving spouse gets all.

 

However, if all of the deceased’s children are not of the marriage, half of all the community assets are confirmed as owned by the survivor — again, so far so good. But the deceased spouse’s community half and their separate property is divided among the deceased’s children. In other words, the surviving spouse owns one half of the residence while their children and stepchildren own the other half.

 

While the court may still appoint an administrator in this situation, their job will be to ensure an orderly administration of the estate; however, there is nothing they can do to alter the ultimate distribution of your estate. This potentially difficult situation could have been avoided through the execution of a will.

 

How to avoid probate

Depending on the complexity of your estate and the state where it takes place, the probate process can be both costly and slow. Additionally, in all instances, it exposes your estate to public scrutiny. On average, the process takes six to 12 months from the date the case is opened with the probate court. Fees and expenses can add up quickly, especially if you die intestate and your estate is complex and drags on for longer than average.

 

“There are two ways to minimize the impact of probate on your loved ones,” says Pacheco. “First, you can prepare and execute a will. Once the probate court deems your will valid, your executor can quickly and efficiently begin the process of settling your estate and distributing your assets to beneficiaries.

 

“Alternatively, you can create and fund a living trust. Assets held in a living trust are not considered to be part of your estate when you die, and therefore are not included in probate. This is because a trustee holds legal title to the trust property and must distribute it according to the terms of the trust. Placing assets in a living trust may avoid some (but not all) of the expenses of estate administration under the probate process and ensures the privacy of your personal affairs.”

 

Pacheco notes that even with a living trust, you will still need a will to handle any assets that were not funded into your living trust during your lifetime. In addition, the living trust provides a mechanism for lifetime management of your assets in the event of your incapacity, as discussed in the article, “What Happens if You Become Incapacitated? Know Your Estate Planning Options.”

 

Here are a few more things to keep in mind when it comes to the probate process:

 

  • Expedited probate process: Depending on the size of your estate, you may qualify for an expedited probate process. Each state’s exemption level and other requirements for expedited probate differs, so check to see what the minimum estate size is in your state.
  • Non-probate asset: Not all assets are included in probate. Non-probate assets include life insurance policies with a designated beneficiary, bank accounts that are payable upon death or held as joint tenants with rights of survivorship, 401(k) and other retirement plans. These non-probate assets pass directly to your designated beneficiaries. In some jurisdictions, real estate may be held jointly with your spouse with rights of survivorship, which allows it to bypass probate.

 

The best way to avoid a long and drawn-out administration of your estate is to plan ahead and create a will or will and living trust combination. No matter the size of the estate, a will or will and living trust combination is a good idea for everyone.

 

Make estate planning a priority

Learn more about estate planning by downloading our free eBook, “Estate Planning: Why It’s Important and How to Get Started.” Or, if you’re ready to talk to a Cadence Bank estate planning expert, please contact us today.

 

 

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.



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