What is Probate?
Probate is a court process that many families may go through to receive their inheritance. Very simply, when someone dies and if they own assets in their name at the time of death, a judge needs to make an order who the new owner is going to be. That’s it; that’s the goal. But, like most everything that goes on in our country’s court system, something that seems so simple can become a whole drawn-out process. Most people that have gone through probate feel the two biggest disadvantages are the cost and time to get through it.
Cost of Probate
Since beneficiaries are commonly not lawyers or familiar with court procedures and probate law, many of them decide they need the help of an attorney. Between the attorney and court costs, expenses may average 4% to 5% of the typical estate1. 4% to 5% may not seem like too much, but let’s put that into an example of a person’s estate valued at $500,000 (their home, furnishings, vehicles, savings, etc.). 4% to 5% of $500,000 is $20,000 to $25,000 in expenses. This amount of expense doesn’t usually sit well with most people. They would rather have all of their money go to people they care about; the beneficiaries of their choosing.
How long does Probate Take?
On average, the probate process may take 6 months, and sometimes 1-year or more. About 75% of the people going through probate fall into this range of 6 months to 1-year. What can cause it to go longer? Court delays for one. Also, it’s not uncommon for beneficiaries to fight over the money and it ends up taking time for the judge to decide who gets what. It only takes one person, one family member, or in-law who thinks their spouse deserves more, to start the fight and send the family into turmoil.
Additionally, assets in probate cannot be accessed or utilized by the beneficiaries during probate. This is one of those often overlooked, but potentially devastating effects of probate. As an example, back in 2014 Daryl and his two sisters inherited their parent’s estate in the state of California. During a seminar, Daryl shared with the crowd that probate on the estate was approaching three years. The home in probate had tremendous equity, but a mortgage still existed on the home. He shared that he and his two sisters had been having to come up with the money to pay the mortgage on the home every single month, otherwise the home could actually foreclose while in probate. And, without any access to the assets of their parent’s estate in probate, Daryl shared the stress of making the monthly mortgage payment was tearing the siblings apart to the point they were considering abandoning their inheritance. Hopefully, Daryl and his two sisters made it through this tough situation, but it is a common example of how a lengthy probate process can cause undue stress and financial hardship on the beneficiaries of an estate.
Who must go through Probate?
Not everyone has to go through the probate process. It generally depends on the value of the estate at the time of death. It varies by the state in which the person lived, but there is usually a minimum amount. In many states, estates valued as low as $22,000 and up to only $166,250 (both real and personal property) generally have to be probated. Therefore, avoiding probate is not just an issue for the wealthy. In fact, just owning a home can often exceed the minimum and require the estate to file for probate.
What About Wills?
Sometimes a Will is sufficient to pass on an inheritance, but in many instances, it is not. If at the time of death, a person owns less than the minimum amount of assets required for probate, then a Will is generally sufficient to pass an inheritance since there is no probate. But, if a person’s estate value is over the minimum, a Will usually does not prevent the assets from going through probate. The Will is actually filed with the probate court and the judge will attempt to follow the wishes of the person who wrote the Will.
Protect your family from probate with a living trust for just $699.
1IRS Statistical Studies; Estate Planning Concepts Life and Health Continuing Education Course, Ninth Edition, 2006
It’s good to know the minimum amount of values required to undergo probate. My friend’s father just recently passed away and they weren’t sure what to do next and who gets to keep his house since he didn’t leave a will. It seems that they will have to undergo probate. I’ll tell them about the basics I learned from your article as well as advise them to get a probate attorney, that way they can help with the process and hopefully get a speedy conclusion.