Feb 12
The Pros, Cons, and Ways to Avoid It
Understanding Probate
Probate court plays a role in ensuring that assets are fairly distributed after someone passes away. However, the process can be lengthy and costly and may expose your family's financial details to the public. The process can be even more cumbersome for business owners and those with property in multiple states. Here’s what you need to know about probate and how to sidestep it potentially.
What is Probate?
Probate is a legal process that oversees the distribution of a deceased person’s assets and ensures debts are settled. While the goal is straightforward—validating a will and ensuring assets go to the rightful heirs—the reality can be much more complicated.
While probate can help facilitate a fair settlement, it often comes with drawbacks, such as delays, legal fees, and a lack of privacy.
“Fortunately, there are strategies to simplify estate administration while avoiding unnecessary fees and costs and reducing the length of time to distribute your assets,” says Katie Noles, CEP® and owner of Advisors EP, an estate plan preparation service for clients working with Financial Professionals.
Why Would You Want to Avoid Probate?
While probate is a well-known process that hundreds of thousands of people experience each year, that doesn’t mean it is the best option for your family.
One major downside is the time commitment. First, the will is presented to the court, where its validity is established. Some states allow for self-proving affidavits to simplify and expedite this portion of the process. However, the process can drag on even in states that allow this. A safe assumption for a modest estate is for the process to conclude within 9-18 months. For larger estates, the process can take years.
Another more well-known downside is the cost. Probate costs, meaning the standard underlying costs to complete the process, vary by state; typically, they range from 1% to 4% of an estate’s total value. For example, a $1 million estate could cost $40,000 or more to settle. Then, there are additional fees to consider: those from attorneys, accountants, appraisers, and executors.
“Legal challenges can also arise, and statistically, this occurs more often within a will-based estate plan than a trust-based estate plan, especially in blended families or when disputes occur over inheritance,” says Mike Bennett, lead estate planner for EncorEstate Plans. “Judges within your state follow the law. Emotional appeals by family members are rarely, if ever, considered," says Bennett. This can make contested wills particularly complex and stressful. Families planning for the inevitable often choose alternative estate planning strategies to avoid potential infighting within their family and the headaches associated with probate.
Finally, one of the biggest concerns for many individuals is privacy. Probate records are public, meaning financial details and family matters may become accessible to anyone who seeks them. This factor alone is enough for some individuals to choose an alternative path. The thought of beneficiary information and their personal and business assets on display for anyone interested in viewing it can be uncomfortable and upsetting. If discretion regarding your assets is important, exploring alternatives to probate is essential.
An experienced financial or estate planning professional can help you assess your options and develop a strategy to protect your legacy.
An Alternative to Probate
It allows you to transfer assets into the trust while maintaining full control over them during your lifetime. You can buy, sell, or move assets in and out as needed. The trust becomes irrevocable upon your passing or incapacitation (or the surviving spouse's), meaning it cannot be altered. You are considered one and the same, i.e., the same person or thing. Usually, there are no additional tax filings for you to worry about during your lifetime either. Additional post-death filings can also be avoided if the trust has less than $600 in income after you pass.
The flexibility and efficiency of revocable trusts can be appealing, especially for those looking to distribute assets to beneficiaries as quickly and seamlessly as possible.
Trusts allow families to settle matters discreetly. While setting up and closing/terminating a trust comes with some administrative costs, it's often a worthwhile investment for those looking to avoid delays, expenses, and exposing their personal information and assets at death to the public.
The Benefits of Having a Plan in Place
“No matter what type of estate plan you have in place, it is an improvement from passing intestate,” says Noles. She added, “Clients often view this as a gift or final act of kindness. They complete their estate plan to eliminate many of the stressors their loved ones would have to deal with after their passing and to provide clarity regarding their final wishes.”