Probate is how the government oversees estate settlement.
Most Americans do not understand probate.
They have read news articles about celebrity estate battles or have heard stories from friends about the challenges they have faced.
Stories like these often lead to people to feel fear and dread about the future of their own assets.
According to a recent The Hawaii Herald article titled “Estate Planning Insights—Understanding Probate,” the rules of probate vary by state.
In some states, probate is only required if the total worth of an individual exceeds a specific amount.
In Hawaii, this number is $100,000.
In both Kansas and Missouri, the magic number is $40,000 to utilize a “small estate affidavit” process.
Interesting, the small estate affidavit cannot be used to transfer real estate valued below the $40,000 limit, but in Missouri it can.
Also, interesting, an attorney is required to process the small estate affidavit in Missouri and court approval is required.
Not so in Kansas on either count.
Other states require probate for any estate regardless of the value.
To otherwise bypass probate, the estate plan must be designed to distribute assets through other means.
But first, what is involved in the probate process?
Ideally, the decedent would have created a valid last will and testament with an experienced estate planning attorney.
The last will and testament would be filed with the probate court.
Written notice would be given to the individuals named in the last will and testament.
If the person dies without a last will and testament, written notice will be sent to those who are eligible to inherit.
Whatever is done or submitted to the probate court becomes public record.
Accordingly, anyone has access to a copy of your last will and learn about your estate, to include the nature and value of your asset subject to probate.
This includes ex-spouses, creditors, estranged family, and robbers.
Without a last will, the court distributes assets to heirs according to the state intestacy laws.
In this situation, the judge would also be responsible for selecting a guardian for your minor children.
If your last will is ruled invalid, then your estate would be settled according to the intestacy laws as well.
You can save time, money, and frustration for your loved ones by working with an experienced estate planning attorney.
Probate can be a long and arduous process, especially if the estate is complex.
Are all assets distributed through probate?
Nope, not necessarily so.
Assets held by more than one person tend to become the property of the surviving owner upon the death of the other owner, if held as joint tenants with rights of survivorship (JTWROS) and not as tenants in common.
Often checking accounts, investment accounts, savings accounts, and real estate can and are held in JTWROS.
Unfortunately, other problems may arise when title is so held.
For example, the potential divorces, lawsuits, and bankruptcies of one joint owner can jeopardize any JTWROS interest of the other owners.
Assets with beneficiary designations also bypass probate and are distributed directly to the heirs.
These include annuities, IRAs, 401(k)s, life insurance polices, savings bonds, “Pay on Death” accounts, and “Transfer on Death” accounts.
It is important to review and update the designations regularly.
If you fail to do so, you may unintentionally leave the asset to someone who is no longer in your life.
Including a fully funded revocable living trust in your estate plan can help you avoid probate and provide more control and direction regarding the distribution of assets.
Although a revocable living trust allows you to maintain control over your assets while you are alive, it does not remove these assets from your net worth for the sake of Medicaid eligibility.
It also does not shield your trust assets from you own liabilities.
Whether you plan to distribute assets through or outside of probate, it is important to secure the services of an experienced estate planning attorney in your state of residence.
Reference: The Hawaii Herald (Jan. 21, 2022) “Estate Planning Insights—Understanding Probate”