Probate is the process by which a court validates the will of a deceased person by determining that the decedent was mentally competent and was under no duress at the time he or she signed it and that the will was properly executed under the laws of the state in which the decedent was domiciled. Once these conditions have been satisfactorily proven (i.e., the will has been probated), the court issues letters testamentary to the person or organization (such as a bank or trust company) that was named as the executor in the decedent's will. The letters testamentary provide notice to third parties dealing with the estate that the parties named therein are authorized to represent the decedent's estate in the conduct of its affairs.

 

 

Assets in which the decedent has sole title are subject to probate. The probate estate includes all property held in the decedent's name. Certain kinds of property, such as property owned jointly by the deceased and another person, life insurance, and property held in trust, are not part of the probate estate and are not subject to the probate process.

 

For example, jointly owned bank accounts pass automatically to the surviving joint owners upon the death of one of the owners without going through probate. Also, if the decedent is the sole owner of certain stock certificates, the value of the stock certificates will be included in the decedent's probate estate. The following assets do not pass via probate:

1. Assets held in joint tenancy with right of survivorship;

2. Assets held in a living trust, even though revocable; and

3. Assets disposed of by contracts, such as the proceeds of life insurance contracts.

 

 

No, not necessarily. An asset can be excluded from the decedent's probate estate (i.e., the portion of a decedent's property and assets that passes via a court proceeding) but still may be included in the decedent's estate for estate tax purposes. For example, a decedent's joint tenancy interest in land will be excludable from the probate estate but will be includible in the taxable estate.

 

Example 2-1. A race car driver dies, leaving, among other assets, stock in his name worth $100,000 and a joint tenancy in a race car with his son. The son contributed one half of the cost of the race car. The stock is part of both the probate estate and the taxable estate; the race car is not in the probate estate, but one half of the value of the race car is included in the taxable estate.

 

Actions taken to avoid probate do not necessarily result in a reduction of estate tax liability. This disparity occurs because the underlying purposes of probate and the estate tax system are different. The goal of the probate process is to distribute property that was held solely by the decedent. Because other laws provide, for example, for the distribution of joint tenancy property, probate does not concern itself with that type of asset.

 

The federal estate tax system, however, attempts to tax the estate of a decedent on all of the property in which he or she had any interest at death. For estate tax purposes, it makes no difference who will receive the property under the decedent's will. In order to determine what is to be included in the decedent's gross estate, the estate tax system examines the decedent's ownership interests immediately prior to death. As a result, the value of the decedent's interest in joint tenancy property is included in his or her gross estate even though, upon the decedent's death, it passed by operation of property law to the remaining joint tenants.

 

 

Contract proceeds (e.g., payments from a nonqualified deferred compensation arrangement, qualified plan distributions, and IRAs) that are payable to a named beneficiary are not subject to probate. In contrast, contract proceeds that are payable to the estate are subject to probate.

 

The reason for this discrepancy in treatment can be found by studying the purpose of the probate system. Contract proceeds that are payable to a beneficiary who is named in the contract will automatically be distributed to that beneficiary through the operation of contract law. Those proceeds do not need to go through the probate process, because another applicable law determines their distribution.

 

In contrast, contract proceeds that are payable to the estate must go through the probate process because no other law governs the distribution of these proceeds. As a result, they are subject to probate and will be distributed according to the decedent's will (if he or she had a valid will) or according to state laws of intestacy.

 

 

Three commonly perceived disadvantages of probate are excessive costs, excessive delays and the publicity associated with court proceedings.

 

 

Probate costs include attorneys' fees for appearing in probate court and court costs. These fees are deductible either against income or against the estate tax. To some extent, these costs are reduced by the availability of summary probate procedures (i.e., shortened procedures for small and/or uncomplicated estates) in many states. In Florida, for example, if the value of an estate does not exceed $25,000, or if the decedent has been dead for more than two years, summary administration is available. [Fla. Stat. § 735.201 (2)]

 

In determining whether avoiding probate will save money, it is important to keep in mind that some fees are going to be incurred in connection with the death in any event; for example, the fees associated with tax planning and the tax filings necessitated by the death. Another consideration is that there are costs associated with avoiding probate. A common device used to avoid probate is the funded revocable trust, also referred to as a living trust. If this trust is created, attorneys' fees will be incurred in creating the trust, and fees will be incurred in transferring assets to the trust.

 

 

As indicated, the probate process starts with the filing of a petition to probate and ends with the appointment of an executor. During the course of this process, time may be consumed in tracking down witnesses to the will; in determining all of the decedent's distributees (those persons who would have inherited had the decedent died intestate); and in dealing with the typically busy court calendars of many of the probate's courts, particularly in the larger urban communities. Typically, an uncomplicated probate procedure generally is completed within two to 12 weeks subsequent to the filing of a petition to probate with a surrogate's court.

 

 

Many decisions remain to be made after death occurs. Post-death estate planning centers around filing the appropriate tax returns, making the proper elections, planning estate distributions, and determining whether any disclaimers can and should be made. Both estate income and estate tax returns must be prepared and filed on time. The estate executor must consider whether to take a deduction for administrative expenses against the estate tax or the estate's income tax. Because estate assets can be valued as of the date of death or on an alternate valuation date, the executor must decide which of those dates to use.

 

 

First, a petition for probate of the will must be filed with the probate court, along with the original will and a certified copy of the death certificate. Notice must be mailed to all of the decedent's heirs at law (usually the surviving spouse, children, and children of any deceased children), to those named as beneficiaries in the will, and, if a charity is involved or there are no heirs at law, to the Attorney General. Notice must be also published in a local newspaper. If no one objects by a deadline set by the court, the executor named in the will is appointed by the court.

 

 

The executor is responsible for collecting the probate property and for paying any debts of the estate. The executor must file with the probate court an itemized list, known as an "inventory," of the probate property, including the value of each item. The executor must file an estate tax return within nine months of the date of death. This is true even if no estate tax is owed, if the decedent owned real estate or the executor wants his or her final accounting allowed by the probate court. Creditors of the estate have a specific time period, typically between six months to one year from the date of death to bring claims against the estate. Executors generally wait until this claim period has expired to complete distribution of the estate according to the terms of the will. As his or her final responsibility, the executor must file an accounting with the probate court showing the income and expenditures of the estate administration.

 

 

Probate is a court proceeding; thus, the documents filed in court are public records available to newspapers and television. In contrast, a trust document is not a public document, although the trust document may have to be produced in order to transfer assets. Consequently, although an individual might have to show the trust document to the court or a bank, newspaper and television reporters would not have access to it.

 

 

If an estate is probated, creditors have a set period of time in which to file their claims. If the claims are not filed within that time period, they are barred forever. These time periods vary from state to state. Some forms of ownership, such as joint tenancy, are generally not subject to the claims of the deceased's creditors at all. Instead, the property passes to the surviving joint tenant without regard to the creditors' claims (assuming that the joint tenant has not assumed personal liability for the joint tenancy asset).

 

 

Probate can be avoided in a number of ways. Four basic methods of

avoiding probate are as follows:

 

1. Creating joint tenancies;

2. Using trusts;

3. Creating a tenancy by the entireties; or

4. Establishing a funded revocable living trust.

 

The Law Firm of Robert L. Vogel can help you administer an estate. We provide full probate services, or we can assist and advise an executor or administrator. We are also available to represent you in will contests in Court. Please call 865-357-1949 or email rlvogel@robertvogellaw.com