When a person dies, everything stops in connection with his or her affairs, and someone must step in and take charge of things until the estate is settled and the property transferred to its new owners. If a probate court proceeding is required, this process can take many months.
1. What is probate?
Probate is a legal process that includes:
- proving in court that a deceased person's will is valid (usually a routine matter)
- identifying and inventorying the deceased person's property
- having the property appraised
- paying off legal debts, including death taxes, and
- distributing the remaining property as the will directs.
For the most part, probate involves paperwork and court appearances by lawyers, who are paid from estate property that would otherwise be available to the people named in the will (beneficiaries). The probate process typically drags on for well over a year. Property left by the will cannot be distributed to beneficiaries until the process is complete.
Probate rarely benefits your beneficiaries, and it certainly costs them money and time. Probate makes sense only if your estate will have very complicated problems, such as many debts that can't easily be paid from the property you leave.
2. Who is responsible for handling probate?
In most circumstances, the executor named in the will takes this job. If there wasn't any will, the probate court will name someone to handle probate - most often the closest capable relative, or the person who will inherit the bulk of the deceased person's estate.
Sometimes, no formal probate proceeding is necessary. This may happen if an estate is very small, has been planned using probate avoidance devices such as joint tenancy or a living trust, or because the estate goes mostly to the surviving spouse. In these circumstances, no administrator is formally appointed. Instead, a close relative, often the person who inherits the bulk of the estate, serves as an informal estate representative. Normally, families and friends decide this among themselves, and it is not uncommon for several people to share the responsibility.
3. Is it difficult to serve as estate representative?
Serving as an estate representative can be a tedious job, but it doesn't require special financial or legal knowledge. Common sense, conscientiousness and honesty are the main requirements. If an executor needs help, he or she will be able to hire lawyers, accountants or other experts, and pay them from the assets of the deceased person's estate.
Essentially, the estate representative's job is to protect the deceased person's property until all debts and taxes have been paid, and see that what's left is transferred to the people who are entitled to it. The law does not require an executor to be an expert or to display more than reasonable prudence and judgment, but it does require the highest degree of honesty, impartiality and diligence. This is called a "fiduciary duty"--the duty to act with scrupulous good faith and candor.
4. Does the person named in a will as executor have to serve?
No. When it comes time, an executor can choose whether or not to accept this responsibility. And even if the deceased person's choice does agree to serve, he or she can resign at any time. If an executor decides not to serve or resigns, an alternate named in the will takes over. If no one is available, the court will appoint someone else to step in.
5. What exactly does the executor do?
The executor usually must:
- Decide whether or not probate court proceedings are needed. If the deceased person's property is worth less than a certain amount (it depends on state law), formal probate may not be required.
- Figure out who inherits property. If the deceased person left a will, the executor will read it to determine who gets what. If there's no will, the administrator will have to look at state law (called "intestate succession" statutes) to find out who the deceased person's heirs are.
- Decide whether or not it's legally permissible to transfer certain items immediately to the people named to inherit them, even if probate is required for other property.
- File the will (if any) and all required legal papers in the local probate court, if probate is required.
- Find the deceased person's assets and manage them during the probate process, which commonly takes about a year. This may involve deciding whether to sell real estate or securities owned by the deceased person.
- Handle day-to-day details, such as terminating leases and credit cards, and notifying banks and government agencies - such as Social Security, the post office, Medicare and the Veterans Administration - of the death and the fact that he or she is winding up the person's affairs.
- Set up an estate bank account to hold money that is owed to the deceased person-- for example, paychecks or stock dividends.
- Pay continuing expenses-- for example, mortgage payments, utility bills and homeowner's insurance premiums.
- Pay debts. As part of this process, the executor must officially notify creditors of the probate proceeding (state law sets out a procedure to follow). Creditors then have about four to six months to file claims.
- Pay taxes. A final income tax return must be filed, covering the period from the beginning of the tax year to the date of death. State and federal estate tax returns may also be required; whether any tax is due will depend on how much property the deceased person owned at death and to whom the property was left.
- Supervise the distribution of the deceased person's property to the people or organizations named in the will.
6. Does the executor get paid?
Obviously, the main reason for serving as a personal representative is to honor the deceased person's request. But the executor is also entitled to payment. The exact amount is regulated by state law and is affected by factors such as the value of the deceased person's property and what the probate court decides is reasonable under the circumstances. Commonly, close relatives (especially those who will inherit a substantial amount under the will) and close friends don't charge the estate for their services.
7. Is a lawyer necessary?
Not always. An executor should definitely consider handling the paperwork without a lawyer if he or she is the main beneficiary, the deceased person's property consists of common kinds of assets (house, bank accounts, insurance), the will seems straightforward, and there are good self-help materials at hand. Essentially, shepherding a case through probate court requires shuffling a lot of papers. A personal representative probably won't ever see the inside of a courtroom; instead, he or she will deal with the court clerk's office. In the vast majority of cases, there are no disputes that require a decision by a judge. The executor may even be able to do everything by mail. Doing a good job requires persistence and attention to tedious detail, but not necessarily a law degree.
But if the estate has many types of property, significant tax liability or potential disputes among inheritors, an executor may want some help.
There are basically two ways for an executor to get help from a lawyer:
- Hire a lawyer to act as a "coach," answering legal questions as they come up. The lawyer might also do some research, look over documents before the executor files them or prepare an estate tax return.
- Turn the probate over to the lawyer. If the executor just doesn't want to deal with the probate process, he or she can hire a lawyer to do everything. The lawyer will be paid out of the estate. In most states, lawyers charge by the hour ($150-$200 is common) or charge a lump sum. In a few places, however, a fee is authorized by state law. For example, in California and a few other states, the law authorizes the lawyer to take a certain percentage of the gross value of the deceased person's estate unless the executor makes a written agreement calling for less. An executor can probably find a competent lawyer who will agree to a lower fee.
8. If an executor doesn't want to hire a lawyer, is there any other way to get help?
Lawyers aren't the only place to get information and assistance. Here are some others:
The court. Probate court clerks will probably answer basic questions about court procedure, but they staunchly avoid saying anything that could possibly be construed as "legal advice." Some courts, however, have lawyers on staff who look over probate documents; they may point out errors in the papers and explain how to fix them. * Other professionals. For certain tasks, an executor may be better off hiring an accountant or appraiser than a lawyer. For example, a CPA may be a big help on some estate tax matters. * Paralegals. In many law offices, lawyers delegate all the probate paperwork to paralegals (non-lawyers who have some training or experience in preparing legal documents). Now, in some areas of the country, experienced paralegals have set up shop to help people directly with probate paperwork. These paralegals don't offer legal advice; they just prepare documents as the executor instructs them. They can also file papers with the court. To find a probate paralegal, an executor can look in the yellow pages or search engine under "Typing Services" or "Attorney Services." The executor should hire someone only if that person has substantial experience in this field and provide references to be checked out.
9. Wouldn't it be better to try to avoid probate altogether?
Whether to spend your time and effort planning to avoid probate depends on a number of factors, most notably your age, your health and the size of your estate. If you're young and in good health, a simple will may be all you need - adopting a complex probate avoidance plan now may mean you'll have to re-do it as your life situation changes. And if you have very little property, you might not want to spend your time planning to avoid probate. Your property may even fall under your state's probate exemption (most states have laws that allow a certain amount of property to pass free of probate, or through a simplified probate procedure).
But if you're older (say, over 50), in ill health or own a significant amount of property, you'll probably want to do some planning to avoid probate.
10. What is the best way to avoid probate?
There's no one answer for all people; it depends on your personal and financial situation. The most common probate avoidance methods are:
Pay-on-death designations. Designating a pay-on-death beneficiary is a simple way to avoid probate for bank accounts, government bonds, individual retirement accounts and, in many states, stocks and other securities. In some states, you can even transfer your car through such an arrangement. All you need to do is name someone to inherit the property at your death. You retain complete control of your property when you are alive. Then, when you die, the property is transferred to the person you named, free of probate.
Joint tenancy. Joint tenancy is a form of shared ownership where the surviving owner(s) automatically inherits the share of the owner who dies. Joint tenancy is often a good choice for couples who purchase property together and want the survivor to inherit. (Some states also have a very similar type of ownership, called "tenancy by the entirety" just for married couples.) Generally, it's not a good idea to use joint tenancy as a will substitute because a joint tenant becomes an immediate co-owner and can sell or borrow against his or her share. Also, there are negative tax consequences of giving appreciated property to a joint tenant shortly before death.
A living trust. A revocable living trust is a popular probate avoidance device. You create the trust by preparing and signing a trust document. Once the trust is created, it has the legal capacity to own property, and you can transfer property to it. When you create a living trust, you don't have to give up any control over the trust property. When you die, the trust property can be distributed directly to the beneficiaries you named in the trust document, without the blessing of the probate court. Living trusts are discussed in more detail in the next series of questions.
Insurance. If you buy life insurance, you can designate a specific beneficiary in your policy. The proceeds of the policy won't go through probate unless you name your own estate as the beneficiary.
Gifts. Anything you give away during your life doesn't have to go through probate. Making non-taxable gifts (up to $10,000 per recipient per year, or to a tax-exempt entity) can also reduce eventual federal estate taxes. So if you can afford it, a gift-giving program can save on both probate costs and estate taxes.
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