Many people never consider their estate planning documents beyond thinking, “Hey, I should have a will.” It is precisely this kind of thinking that leads so many families straight to a messy probate case. Once people are informed of the alternatives to probate, they almost always make the choice to keep their family out of the court and out of the mess. Once people understand the hassle of probate, they readily seize the opportunity to have an estate plan so their loved ones avoid probate and court altogether.
In our last article, we started our deep dive into probate. We revealed, what may be a shocking fact for some; that even if you have a will, probate is required. As a will is merely your instructions to the probate judge of what you want. Unless you have created a comprehensive estate plan that avoids the court probate process (i.e. your estate plan is more than just a will), your loved ones will bear all the stress and strife associated with going to court. Here we will continue our journey into understanding the entire probate process.
Our last newsletter discussed the first four months of the probate process which includes filing the court case, the judge appointing your representative, and the publication of the notice to creditors. You can read Part One by clicking here. Here we will continue our journey into the rest of the probate process.
Now What? Probate Continues.
4. Locating and Valuing Your Assets: During the probate process, the Personal Representative must identify, locate, and take possession of all of your assets so the total value of your estate can be determined. Some assets may need to be appraised. More of your loved ones’ time and your money are expended for this process which includes not only those assets listed in your will but also those you may have not thought to include in your planning. And there is always the possibility that some of your assets will not be located and they will end up as unclaimed property.
Any assets the Personal Representative is unable to locate will end up in our state’s Department of Unclaimed Property. Across the U.S., there is more than $58 billion (yes, that’s billion with a ‘b’) of assets stuck in Departments of Unclaimed Property departments between the 50 states and the federal government. Don’t let this happen to your loved ones!!!!! If you work with Cris Carter Law, we do a comprehensive asset inventory to make sure ALL your assets are tracked. We will teach you how to easily keep your inventory updated throughout your lifetime.
5. Nothing is Certain but Death and TAXES: The Personal Representative is also responsible for filing and paying any outstanding taxes you owe to the government at the time of your death. This includes personal income taxes and capital-gains taxes. The federal estate tax exemption is at an all-time high of $12.06 million in 2022 for individuals. However, legislation is underway in Congress to significantly reduce the federal estate exemptions. If taxes are owed from your estate, they must be paid before your loved ones receive anything. In some cases, this may require liquidating assets to raise the needed cash to pay the government.
6. Finally, Your Loved Ones Get What’s Remaining: Once the court confirms all of your debts and taxes have been paid—which typically requires the Personal Representative to file an accounting of all transactions they engaged in during the probate process—the Personal Representative can petition the court for authorization to distribute the remaining assets in your estate to the beneficiaries named in your will, or according to the laws of your state’s intestate succession, if you didn’t have a will.
Once all assets have been distributed, the Personal Representative then files a petition with the court to close probate. If all creditors and taxes have been paid, your assets have been distributed, and there are no other outstanding issues to be addressed, the court will issue an order formally closing the estate and terminating the Personal Representative’s appointment.
Not All Assests Require Probate
Another thing that many people never consider when planning is those assets that bypass probate. The most common assets that bypass probate are those that use beneficiary designations:
- Retirement accounts, IRAs, 401(k)s, and pensions
- Life insurance or annuity proceeds
- Payable-on-death (POD) bank accounts
- Transfer-on-death (TOD) property, such as bonds, stocks, vehicles, and real estate
Other assets that do not go through probate include assets with a right of survivorship, such as property held in joint tenancy, tenancy by the entirety, and community property with the right of survivorship. These assets automatically pass to the surviving co-owner(s) when you die, without the need for probate.
To some people, assets bypassing probate may sound like a good idea. However, assets that are left through beneficiary designations can cause even more problems and more court interference than if they had gone through probate. WHAT? Yes that is correct. For instance, the life insurance or assets left to minor children although they may bypass probate they require court oversight annually because a minor cannot receive those funds directly. So the court appoints someone to handle and manage funds left to a minor.
Another problem that arises from the use of beneficiary designations is when the beneficiary dies at the same time as you do, has died before you, or you have lost a relationship with the named beneficiary and forgot to make a change of beneficiary. Or if you name your “estate” as the beneficiary fo any of your assets, those assets will go through probate before being distributed to the person intended.
We generally DO NOT recommend that you rely on beneficiary designations to handle the distribution of your assets. Designations give you little to no control over how your assets are distributed. The use of beneficiary designations can result in negative outcomes you did not intend, especially if you have a blended family with children from a prior marriage or if you have no children at all.
By not having a written estate plan that you have carefully considered, you will have no choice at all in the distribution of your assets. In fact, you will have an estate plan that the government has done for you. And you may not like the government’s plan at all. If you do have a will, as you have seen probate court proceedings will 8 to 9 months minimum, and could take years, to complete. Face it, in the aftermath of your death, that’s the last thing you want your loved ones to endure. Fortunately, with proactive estate planning, it’s easy for you to spare your family the mess and burden of probate. Now that you understand the hassle of probate, seize the opportunity to get your estate planning strategies in place to help your loved ones avoid probate altogether. You owe it to your family to ease their burden.
Stay tuned to read up on the different ways you can help your family avoid probate with wise planning strategies you can use to avoid the need for your loved ones to go through probate. Until then, if you haven’t put an estate plan in place or have one that needs revising, contact us for a Family Wealth Planning Session.