Probate as the Boogey-Man: What is Probate and Why Do I Want to Avoid It?
Almost as strong as Americans’ longing to avoid death is our collective insistence that probate is worse than the boogey-man and is to be avoided if at all humanly possible. It’s as though probate is out there to get you, lurking in your closet, the reason you’re taught to look under the bed before going to sleep.
Actually, probate is just the legal process in which a will is reviewed to determine its authenticity and validity. It is how a deceased person’s will (or the estate of someone without a will) is administered.
The problem with probate is that typically it takes a long time. This means that individuals who stand to inherit an asset will need to wait until the probate process is complete before taking possession of it. Additionally, the longer the process, the more fees to lawyers and courts can add up. Typically, the shorter amount of time that probate takes, the easier and cheaper it can be for the executor and remaining loved ones.
In the U.S., probate guidelines vary state to state. Some categories of assets, however, are generally not subject to the probate process at all. Property such as houses and vehicles that have more than one legal owner; retirement accounts such as IRAs and 401(k)s, so long as a beneficiary was named; life insurance payouts; funds in a pay-on-death account; and unclaimed wages and salaries are typically excluded. That’s a lot of stuff!
That still leaves personal property that is owned solely by the deceased, including real estate, cars, bank accounts. In some cases this can be substantial and sometimes not.
One way to avoid probate altogether is to set up a revocable living trust. Trusts aren’t governed the same way as wills are and so they usually bypass probate. A living/revocable trust helps manage the assets you put into it during your lifetime. (This is handy if you are incapacitated; you can leave instructions to the trustee to control the trust even while you are still alive.) At the time of death it automatically converts to an irrevocable trust and is executed according to the instructions in it, without going through probate.
Complicated estates, with complicated asset structures or relationships—think blended families, the desire to include many beneficiaries, children under 18—are likely best served by the establishment of a trust. Drawing up a trust that is valid and legal in your state should be handled by a lawyer. Thus, there will be costs to this route up front.
However, for simple estates—those that don’t include complicated asset structures like businesses or complex financial instruments and include only a few straightforward beneficiaries—a trust might be a complication you don’t need and a simple will would do just fine. In this case, going through the probate process would likely be swift anyway. (And if a survivor needs an asset right away, there are steps you can take with the help of a lawyer or financial planner to make sure that happens before probate!)
Overall, while it makes sense to take steps to reduce the amount of your estate that needs to go through the probate system, probate isn’t nearly the boogey-man that it’s made out to be. That said, it wouldn’t hurt to look under the bed and go through your closet every now and then. The stuff in there, when left to accumulate through the ages, may prove to be much more of a headache for your loved ones down the line. But that’s the subject of another post…