Demystifying Probate

Andy Reynolds

To many people the word probate has a negative connotation.  Due to the fact that many people only experience the probate process one or two times during their entire lifetime (if that!) it is viewed as confusing, expensive, and undesirable.  Many hire an attorney to guide them through the process and if done correctly, one can avoid the horror stories of a probate that lasts months or years.  In our second Atheneum article, we hope to clarify the probate process and help explain when it can be a positive.

In its simplest terms, probate is a legal process that occurs after someone dies.  The probate process includes the following:

  • Formal recognition within a court that a person is deceased
  • Identifying a deceased person’s last will
  • Inventorying a deceased person’s assets/liabilities (with proper appraisals, if needed)
  • Paying debts and taxes
  • Distributing remaining property

Since many of these administrative tasks will need to be completed when a person passes away irrespective of their ability to avoid probate, an ‘avoid probate at all cost’ mentality may not be entirely warranted.  Tim Dunn, Partner and Estate Planning Attorney at Bingham Greenebaum Doll LLP explains that planning to go through probate may even be desired in some cases.  “Generally, going through the probate process shortens the period of time within which a deceased person’s creditors may seek recovery of a debt from his or her estate.  In Kentucky, the probate rules shorten this period of time to six months from the date a personal representative is appointed instead of what would otherwise be two years from the date of death.  As a result, in some cases, a deceased person’s family can more quickly and confidently distribute his or her estate by proceeding with probate.”

While the probate process may be less daunting than generally recognized, there are certainly reasons to try to avoid probate in several cases.  Some clients choose to avoid probate by establishing and funding revocable living trusts, but, as a general rule, jointly-owned assets, transfer on death accounts and accounts/assets which pass by beneficiary designation (e.g., IRAs) also bypass probate.  Tim Dunn mentioned that many of his clients try to avoid probate for a few common reasons:

        Privacy.  The terms of a client’s will and the assets included in his or her estate are made public as part of the probate process.  Many clients want to avoid this, and avoiding probate with as many assets as possible provides the client and his or her family with privacy.

        Avoiding Probate in Multiple States.  If going through the probate process is perceived as bad, going through the probate process in multiple states at one time is much worse.  If a client owns real estate in a state in which he or she is not a resident at the time of his or her death, the client’s family will have to go through the probate process in the client’s state of residence and the state in which the real property is located.  Most of my clients who own real estate outside their state of residence have the out-of-state real estate owned by a revocable trust or an LLC.

        Trust Planning Implemented for Non-Probate Avoidance Reasons.  If a client has established a revocable trust in order to implement trust planning at his or her death (for tax or asset protection reasons), utilizing that revocable trust by funding it during the client’s lifetime and attempting to avoid probate with respect to many, if not all, of the assets at the client’s death can be prudent planning.

Tim also noted that it is important to clarify one hot topic in estate planning today.  “Many clients are misinformed about the potential benefits of having a revocable or ‘living’ trust.  Generally, a revocable living trust offers no protection from claims by the client’s spouse or creditors, and transferring assets to a revocable trust does not enable a client to qualify for Medicaid.  If a client is not accomplishing any other planning goals by establishing a revocable living trust and the client has a fairly straightforward estate (e.g., he or she owns a house, an automobile, a checking account and marketable securities), it may actually be less expensive to go through the probate process than it would be to form and fund a revocable living trust.”

In conclusion, while the probate process may appear daunting and overwhelming, the decision to affirmatively plan to avoid probate should be made only after considering your specific circumstances and the potential positive and negative aspects of probate.  We always encourage our clients to bring us into these conversations to help review, implement, and monitor an estate plan while working with a trusted estate planning attorney.  If you feel that it would be beneficial to review your current estate plan or establish a new estate plan, please do not hesitate to call our office.