Orlowsky & Wilson Ltd

Tuesday, August 26, 2014

Probate - Everybody Fears it, But Few Know What it is

Probate - Everybody Fears it, But Few Know What it is.
When people consider estate planning, they often list “avoiding probate” as one of the reasons they need to have a plan. But when you ask “what is probate?” they usually don’t know, but they know it’s “bad”. That message has been impressed on them for many years through books, seminars, and advisors. An estate plan, however, usually works best when the person establishing the plan understands what they are doing, and why.

Probate and Guardianship is not always “bad” because quite often it is used to appoint guardians for minor children on the death of a parent. Probate often is, however, an unnecessary burden that can be avoided with proper planning. The burden typically falls on the executor for the deceased (often an untrained family member) or on the beneficiaries themselves.

The purpose of probate is to enable a judge to ensure that the instructions of the deceased person’s will are carried out. If the deceased didn’t have a will or trust (i.e. they died intestate), the judge’s job is to ensure that assets are distributed according to that state’s laws of intestacy.

The probate process can vary widely from state to state and from judge to judge. Some of the variances depend on the size and complexity of the estate. But in most states, the probate process will require the executor (usually with an attorney’s help) to carry out these steps:

  • Present an original copy of the will to the court, and ask the court to open a probate
  • Be sworn in and formally appointed by the judge as the executor
  • If required by the state or the judge, purchase a performance bond
  • Obtain several copies of the death certificate to use in closing accounts, filing tax returns, and taking care of other administrative duties
  • Set up a new checking account in the name of the estate which will be used to handle funds and make payments
  • Locate and make an inventory of every asset owned by the deceased
  • Notify all known creditors of the death, providing each with a copy of the death certificate, and publish a notice in the newspaper for creditors who may not be known
  • Pay all creditors, and collect debts owed to the deceased
  • Protect and manage assets and property, and sell property if required to pay bills
  • File a final federal income tax return for the decedent, as well as an estate tax return, paying any taxes that are due
  • Complete a report and give a full accounting of all financial transactions to the judge
  • Distribute remaining assets and property to the beneficiaries
  • Close the estate
 Obviously, probate is a lot of work, but why do most people think probate is “bad”? The biggest challenges of probate are time, cost, and publicity. It is not uncommon for a straightforward probate (with few complications) to take six months to a year to work through the system. In fact, the federal estate tax return isn’t even due until nine months after death. If beneficiaries are in financial need, they will have to wait to receive their inheritance.

As far as cost is concerned, many items on the list above will be new to the family member or friend serving as executor. Most executors will retain the services of an attorney to supervise the process, or to carry out some of the steps. So the biggest cost to the estate (after debts and taxes are paid) is typically attorney fees.

Finally, everything that happens in a court of law becomes part of the public record. Since most families would prefer that their affairs remain private, they will need to use other planning methods to avoid the probate process.

If you have questions regarding Probate and Guardianship please contact Orlowsky & Wilson at 847-325-5559 or visit our website www.orlowskywilson.com for more information.

 

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