Friday, June 19, 2015

What is probate?

Periodically I have a client who says to me, “Since I have a will, my estate does not have to go through probate, right?”  The answer is, “No, your estate may still have to go through probate.”

The word probate comes from the Latin word “probare” which means “to prove,” or “to test”  It is a process that we go through to make sure that bills of the decedent are paid and the heirs/devisees get clear title to the remaining assets.  Having a will just instructs us what to do with the assets.  It does not avoid the process.  If there are liquid assets worth over $50,000 or real estate solely in the name of the decedent, then there will be a probate proceeding.

It is possible to avoid probate.  Common mechanisms for doing this are (i) to own property in joint tenancy with right of survivorship, (ii) name a beneficiary on an account or insurance policy, (iii) make a stock or stock brokerage account TOD (transfer on death) or an bank account or bond POD (pay or payable on death) or (iv) use a TODD (transfer on death deed) for real property.  For all assets subject to such mechanisms, the will is irrelevant.  What the title paperwork says to do will be what happens.  By using such mechanisms, you have converted what would otherwise be a probate asset (governed by the will) into a non probate asset.

However, the ability to do anything very complex using such mechanisms is limited.  It is difficult to protect people from themselves or deal with minors or plan for multiple contingencies with non probate mechanisms.  Also since even with these mechanisms there may be bills that have to be paid, getting co-operation among the people getting assets to get the bills paid may be very difficult and more expensive than a simple probate.  The best mechanism to avoid probate and still deal with such issues is to create a revocable trust (commonly called a living trust) during your lifetime and put your assets in that trust.  While you are alive, you are usually the trustee and the beneficiary.  On your death we follow the directions in the trust but you have the same flexibility that you have with a will for leaving complex instructions and gifts in trust.  After your death we do this through a trust administration, not a probate. In New York, California and Florida the difference between a trust administration and a probate is huge.  In Minnesota, the differences are small but there still are differences.

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