You may have certain basic impressions about estate planning. The most common assumption is that a last will is the simplest, most economical, and most efficient estate planning tool when it comes to asset transfers.
In fact, this is quite arguable. When you maintain direct personal possession of your assets through to the time of your death and arrange for its distributions through the terms of your will, probate will enter the picture.
Probate is a legal process. When you create your will, you name someone to handle the business of the estate after you pass away. This would be the executor or personal representative. The executor must admit the will to probate, and the court will supervise the administration of the estate.
The first thing you have to understand about probate is that the heirs that you name in the last will cannot receive inheritances while this process is underway. You probably want your loved ones to receive their inheritances as quickly as possible, so this presents an obstacle.
How long will the probate process take? The exact duration will depend upon the circumstances and the jurisdiction. In most areas, if there are no significant complications, an estate could be probated in perhaps eight or nine months to a year.
On the one hand, this is not an extraordinarily long period of time. On the other hand, if you are in line for an inheritance after a loved one has passed away, do you really want to wait for a year while the estate is held up in probate?
We should point out the fact that more complicated cases can take longer, and that leads us to our next drawback.
During probate, there is something called a proving of the will. It is up to the court to examine the will to make sure that it is valid, and that it is in fact the last will that was created by the decedent.
If anyone wanted to contest the validity of the will, this individual could step forward during the probate process. Granted, there is such a thing as a valid will challenge. However, sometimes a disgruntled or opportunistic individual will challenge an estate.
In the end, the true wishes of the decedent may hold sway, but the challenge could delay things considerably and cause a great deal of acrimony among interested parties.
The fact that probate opens a window of opportunity for those who may want to challenge the validity of the will is another pitfall.
There are a number of different expenses that can present themselves during the probate process. First off, there is a filing fee that will be charged by the court. The executor is entitled to payment for his or her time and trouble, and a probate attorney will often be engaged, since probate is a legal proceeding.
Final debts must be paid during probate, including taxes, so the executor will often bring in an accountant. Property appraisers can enter the equation, and there can also be liquidation expenses.
When you factor in various miscellaneous costs that can trickle in on an ongoing basis, in the end, a noticeable portion of the estate can be consumed during probate. Ultimately, these expenses are coming out of the pockets of the inheritors.
As you are going through life, you probably do not advertise your financial decisions for everyone to see. Probate is a public proceeding, so anyone who wants to find out how you planned your estate could access probate records.
This loss of privacy can be personally disturbing in a general sense, but there can be a more significant fallout. People who are close to you may feel slighted by the decisions that you made, and this could cause problems within your extended family and others who were close to you.
Now that you know what happens during probate, you may feel as though you would like to take steps to get assets into the hands of your loved ones outside of this process. This can be done, and there are multiple different ways to go about it.
A very widely embraced probate avoidance solution is the revocable living trust. Assets that are contained within a living trust can be distributed among the beneficiaries outside of the process of probate, and this is just one of many benefits.
To learn more about these trusts, download our in-depth special report. The report is free, and you can click this link to access your copy: Indianapolis Living Trust Report.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.