Understanding Probate

Transcription

1 Understanding Probate

2 Understanding Probate DISCUSSION TOPICS What is Probate? Joint Ownership Avoids Probate Special Considerations of A Will INVEST Trust Services What is Probate? Many people are aware that a Will is required in order to pass their assets to their heirs. What most people are unaware is that all Wills (including those with Trust provisions in them) must go through a transfer process called probate. Wills must be submitted to a probate court before they can go into effect. Also, a Will provides no protection if you become physically or mentally incapacitated. Probate is the legal process through which a probate court guarantees to you that your assets will pass to the individuals named in your Will as heirs and in the manner in which you wanted them to be delivered to these individuals. Where you died determines what state probate court your assets must ultimately pass through. Probate is the legal process through which a probate court guarantees to you that your assets will pass to you love ones according to the terms and conditions of your Will. The probate court determines (1) if your Will is legally valid, (2) that all of your debts are paid and (3) that all of your assets are accounted for and distributed according to the terms and conditions of your Will. The probate process is the only legal way that your name can be legally taken off the title of your assets, after you die, and registered in the name of the individual(s) that your Will indicates is to be the new owner. Not all of your assets will go through probate. Assets that are held in joint ownership (i.e. Joint Tenancy) that transfer to the surviving owner, and assets that have a valid beneficiary designation (like a life insurance policy or Individual Retirement Account) do not go through probate. But this may contradict how you wanted to control the assets after you die. The probate process can be expensive. The costs to probate your Will must be paid from your estate before your assets can be fully distributed to your heirs. Certain assets, like real estate, usually incur very high probate costs. If you own real estate in many different states, the state probate court in which the property is located must first probate the real estate before it can pass through the state probate court that is probating your Will. Generally, the more assets you have, and the more time it takes to probate them, will cause your probate expenses to escalate. The amount of time it takes to probate an estate is not defined by law. However, it is not unusual for the process to take 9 to 12 months.

3 During the time it takes to probate your estate, your assets are not available for use by your heirs. None of your assets can be distributed or sold without the probate court s approval. If your heirs need money from your estate to live on, they must request a living allowance from the probate court, which may or may not be approved. Also assets could drop in value before the probate court allows them to be distributed. The probate process is public. Anyone can find out the details for your Will. Probate is a public process. Anyone can find out the details of your Will, including who your heirs are and what they will receive. Since the probate court must publish your Will, it is filed and becomes a record of the probate court and anyone can request a record from the probate court. If you own a business, your competitors can get valuable information about your financial matters and personal family affairs. You may have decided to exclude some of your loved ones as heirs of your Will. However, since they can receive a copy of your Will from the probate court they can decide to contest the Will and the probate court will listen to their argument as to why they should become heirs to your Will. The probate court has control over how your Will is to be interpreted. So in effect, the probate court, not you or your family, can decide what (if anything) they will get from your estate. Each probate court determines what process your Executor must take in order to probate your Will. It can range from very informal to very formal and highly regulated. When the probate process begins, the probate court takes control of your assets and supervises the actions of your Executor. These actions include finding and controlling your assets and paying your last debts. In most states, the probate court will require that a notice of your death appear in local newspapers, giving creditors and anyone else who feels he/she has a right to be part of your estate to take action within a certain length of time (several weeks or months).

4 At the first hearing of your Will by the probate court, the judge will make sure that your will is valid and has been properly executed by you before you died. If the judge determines that you Will is not valid, then your estate will be probated by the laws of state in which you died and your estate is said to be Intestate. Most probate judges prefer that an attorney be retained to assist your Executor in probating your estate. Your Executor must compile an inventory of your assets (with formal appraisals of valuable items) and present the inventory to both the probate court and to your heirs. Your Executor must collect your final bills and pay them from your estate assets. If there is not enough cash in your estate to pay your debts, the judge may order some of your assets sold in order to pay your debts. The Executor must also prepare your final income tax return and a death tax return. Upon completing these tasks, your Executor will present your estate for final review by the probate court and a notice of this hearing will be sent to all of your heirs and creditors. If there are any disputes from anyone attending the final hearing of your Will, the judge will make the final decisions and then order your Executor to distribute the assets according to the judge s final decisions. After the distributions have been made, the judge will release your Executor from his/her duties and your probate court file will be closed.

5 Joint Ownership Avoids Probate Property held in joint ownership will defeat the ability of the Probate court to give the asset to the person named in your will that is not the joint owner of the property. The type of joint ownership most people use (and the one we will be discussing here) is called Joint Ownership or Joint Tenants with right of survivorship. A lot of people have come to rely on joint ownership as an alternative to Wills and to avoid Probate. Joint Property assets are jointly owned by the parties. However, the ownership is not necessary equal. Either party in a joint ownership arrangement may withdraw the property without the other party s knowledge or consent. When one of the joint owners of an asset or account dies, the ownership of the asset or account will automatically transfer to the other without the requirement of the probate process. However, when the second owner dies without adding another joint owner (which frequently happens), or if both owners should die at the same time, the property must be probated before it can pass to your heirs. There are other risks. When you add a co-owner to your property, you not only lose control, but you expose it to the other owner s debts. The property could be seized as a settlement of those debts. Another risk of owning property and assets jointly is that Joint Ownership also defeats a Will. Since the means by which you want to pass your property is defined by the joint ownership arrangement, the Probate court does not need to assure that the asset will be given to the party intended to receive it. But since the asset passes to the co-owner it is not included as an asset that can be passed to your heirs through your Will. In fact, if you have specifically listed the asset in your Will, the fact that it was held jointly at the time of your death, will defeat the ability of the Probate court to give the asset to the person named in your will that is not the joint owner of the property. Joint ownership can also create some unexpected wealth transfer problems. You could easily, although unintentionally, disinherit your own family. If you own property with your spouse, when you die the property will pass to your spouse. If the spouse dies without a Will, the full ownership of the property will go to your spouse s heirs not yours even if you had left your share to your heirs in your Will. Without a Will, an individual s assets is said to pass Intestate, and Probate laws dictate that they are to pass along the genealogy lines of the deceased. If this is your second spouse and you have children from your first marriage, this could cause you to disinherit your own children. The assets will pass to the children of your second spouse; or even to her parents, brother, sisters or aunts and uncles. Joint Ownership can become complicated. The most important factor to consider before you place an asset into Joint Ownership is that you will no longer have complete control over the asset. Or that you could easily lose control of the asset, based on the actions of your co-owner.

6 Special Considerations of a Will Your will can name guardians for your minor children. You can pour over the assets from your will into a Trust for the benefit of your heirs. This will allow you to dictate the manner in which they receive the assets and at what point in time they will receive the assets. Your will can dictate the way in which you wish to be buried or cremated. The language in your will must be performed exactly as you indicate and cannot be overridden by a spouse or loved one. INVEST Trust Services offers a complete suite of trust services. INVEST Trust Services is a Trust Representative Office of National Advisors Trust Company, NATC. The Trust Company is one of the largest independent trust companies in the nation. It is governed by the Office of Thrift Supervision, ( OTS ), a bureau of the U.S. Treasury Department. The Trust Company is also a member of the Federal Deposit Insurance Corporation ( FDIC ). By law, the Trust Company segregates all trust account assets from the capital assets of the Trust Company, ensuring they are never subject to potential creditor claims against the Trust Company. The Trust Company has a professional team of experienced trust executives that will serve all of your trust needs. Please contact your Trust Relationship Manager at INVEST Trust Services for more information. This information is general in nature and should not be construed as tax or legal advice. INVEST Trust Services does not provide tax or legal advice. Please consult your tax and/or legal adviser for guidance on your particular situation. Personal Trust Services Revocable Trusts Charitable Trusts Irrevocable Life Insurance Trusts Special Needs Trusts Irrevocable Trust transfers from other Corporate Trustees Marital Deduction Trusts Credit Shelter Trusts Bill Payment Accounts Investment Management accounts Retirement Plan Services IRAs Custodian or Trustee Defined Benefit Plans 401(k) Daily Valuation Platform Defined Contribution Plans Roth 401(k) Distribution processing and 1099R filings Contribution processing INVEST Trust Services is provided by INVEST Financial Corporation (INVEST), member FINRA/SIPC. INVEST is not affiliated with NATC or FiPar. Products offered through INVEST are: Not FDIC or NCUA insured Not Bank or Credit Union Guaranteed May lose value including loss of principal. 11bi

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