The first thing to understand is that even a simple Will must go through probate. Often, individuals think that if they have a Will, the Probate Court does not get involved. In fact, just the opposite is true. A Will is simply an expression of what you wish to happen when you die. It is a legal document that identifies who you want to inherit your assets and who should oversee the distribution of those assets. Probate is the Latin term for “to prove the Will”.
What is probate? Probate is the legal process whereby the court appoints an executor to make sure that your bills are paid, that any disputes are resolved, and that the wishes in your Will are carried out. A common misunderstanding is that the executor named in the Will can step in immediately and distribute assets to the beneficiaries. Unfortunately, if your assets are individually held (bank account, stocks, real estate, etc.) probate is the only way to legally remove the deceased owner’s name from each asset so it can be passed on to the beneficiaries. In other words, probate is the legal process of changing title at death.
The probate process requires several steps before any assets can be distributed.
- The first step is to file a petition to open an estate with the Probate Court. Typically, the executor named in the Will files the petition. However, if there is no Will, any interested party can file the petition to start the proceedings. Once an executor is appointed, he can begin to safeguard the assets for the benefit of the beneficiaries. In most cases, the executor appointed in the Will hires an attorney to assist with the probate process. Additionally, if the decedent owned real estate in another state, a probate proceeding must be started in that state as well. This type of probate is called ancillary proceedings.
- Once the estate has been opened, notification of death must be published in the local newspaper and all known creditors must be contacted in writing. Creditors have a right to present their claim to the Executor and the court for payment. In Michigan, the length of time allowed to file a claim is four months from the time notice is published. Once all the debts and claims have been approved, these debts must be paid by the executor from the estate assets.
- The executor must inventory the assets and have any assets appraised that do not have an ovious fair market value. The value of assets such as stocks, bonds and investment accounts can be easily determined, whereas real estate and personal property may require an appraisal. Once the value of all the probate assets are determined, the executor must pay an “inventory fee”. This fee is base on a percentage of the value of the probate assets.
- Before the estate is closed, all taxes and creditor claims must be settled and paid. During the probate process, which can last from as little as nine months to over two years, the estate is open to claims by anyone who does not agree with the terms of the Will. As a result, the beneficiaries will have to wait to receive their inheritance until all taxes and debts have been paid and all disputes have been resolved.
- Once the court is satisfied that all the creditor claims, taxes, debts, attorney fees and executor fees have been paid, the estate assets can be distributed to the beneficiaries and the estate can be closed.
Not everything goes through probate
Only individually owned assets go through probate. Jointly owned assets go to the surviving joint owner, assets with a beneficiary designation go to the individual(s) named on the beneficiary designation form and assets in a Trust go to the beneficiaries identified in the Trust.
Probate is the oldest form of estate planning, which explains why it can be a slow, expensive, and cumbersome process. It is a product of the pony express days when it took months to locate information and notify relatives. In a world that moves at a much quicker pace, the probate process is no longer acceptable to most people. Individuals these days are much more knowledgeable and with phones, facsimiles, Email and overnight mail, we expect matters to be handled in a much more private and expedient fashion. People are suddenly realizing that there must be a better alternative. The alternative is the Revocable Living Trust.