Probate Avoidance 1

First in a Series

PROBATE. The mere word sends shudders down many people's spines. Your friends and neighbors have probably told you horror stories about experiences they have had with a loved one's probate. For example, the widow across the street may have told you that when her husband died, all of his bank accounts were frozen and she was without funds for months while his estate was probated. Or your co-worker may have told you about her mother, whose probate took four years to complete and cost thousands and thousands of dollars. It seems today that everyone is telling you to avoid probate. But should you avoid probate? The only way to know the answer to this question is to understand what the probate process is. This is a decision that involves the ownership and disposition of your assets, and should be a decision made only by you, not by the media, not by your neighbors or friends, and not by your family.

What is probate? Probate is simply the legal process whereby your will is determined to be valid, your assets are gathered together and inventoried by the Probate Court, your debts and taxes are paid, and your assets are finally distributed to the rightful heirs. Only assets in your individual name alone are probated. Therefore, if a bank account is titled in the name of " John Smith," when John dies, that bank account will have to pass through probate in order to be distributed to the rightful beneficiary. The Probate Court judge monitors the probate process. If you have no Will, a person named an "Administrator" is appointed to handle your estate. A person named in your Will to handle your probate estate is called an "Executor." Your executor or administrator serves as a Fiduciary to your estate. It is a position of trust and the person who is to serve should be chosen carefully.

The Fiduciary must prepare and file an Inventory of the assets held in your name alone at the time of your death. The Fiduciary must pay any final expenses of the estate. Additionally, the Fiduciary must prepare and file an Estate Tax Return for your estate. Please note that whether or not probate is avoided, Estate Taxes generally cannot be avoided. Finally, the Fiduciary handles the most important part of the whole court process, distributing your assets to the rightful beneficiaries.

If you die without a Will, the State of Ohio has written a Will for you. It is called the Statute of Descent and Distribution. It determines the heirs to your estate. Sometimes the Statute has an unexpected result. For example, consider the case of Mr. White. He died without a Will, survived by his three children. He didn't think he needed a Will because he just assumed the assets would pass to his three children as he intended, including nothing to his estranged son who he had not seen in years. Unfortunately, the Statute does not necessarily leave everything the way he wanted. Since the Statute provided that all the assets are to be distributed EQUALLY to all children, regards that one is a "black sheep," the estranged son can suddenly appear and receive his full 1/3 of the estate. Hardly the result that Mr. White envisioned. To alleviate such unexpected results, you need a Last Will and Testament which describes the disposition of your assets.

However, there are costs and other issues involved in the probate process, which must be evaluated in determining whether or not probate is appropriate for you. The main cost in the probate process is attorney's fees. Attorney's fees can range anywhere from 2% to 10% of the total value of the assets for probate purposes. Additionally, court costs can be expensive, often ranging as high as $400-$500 for the probate. Finally, your Fiduciary is entitled to a percentage fee ranging from 2% to 4% of the assets. The probate process itself can take as long as nine months to a year in simple cases and as much as three years in more complicated probate estates or if litigation is involved. Finally, another problem with the probate process is that the court filings all become public record. Your neighbors can go down to Probate Court, pull your file, and see what assets you owned, how much your bills were, and who is receiving your estate. Many people do not like the public record aspect of the probate process.

Ultimately, whether or not you avoid probate is a personal decision that only you can make. If you determine that probate avoidance is desirable, there are a number of vehicles which you can use to achieve that goal. In other articles in a series of three we will be discussing some popular probate avoidance techniques, including their advantages and pitfalls.