ESTATE PLANNING Probate Is Nothing to Fear (Maybe)
Probate is often considered a four-letter word, but its nefarious reputation might be a bit overblown. For uncomplicated estates with no feuding heirs, the legal mechanism for passing property moves fairly quickly in most states, often with little court intervention and at reasonable cost.
Probate is the process by which a court oversees the distribution of property left by a will. In a typical case, in which the heirs are the surviving spouse and cooperative children, everything runs smoothly and relatively quickly. It generally takes six to nine months to complete the proceedings. For an estate large enough to trigger a federal estate tax, the timetable can stretch from nine to 15 months or so to determine how much is owed and to get the paperwork in order for the IRS.
A generation ago, almost all estates had to go through a formal probate, and the procedure was often long and nightmarish. Today, however, many states have streamlined the process, reducing the paperwork, time and expense. In some states, your lawyer makes only a few routine appearances, and in other states the estate's representative can handle the process by mail.
Companies selling living trusts -- often by holding sales "seminars" to attract worried prospects -- have also helped to paint probate as a drawn-out and very costly process. There are valid reasons to use such trusts, but the benefits for uncomplicated estates can be oversold. In fact, for very simple estates, setting up a trust may cost you more than it would to go through probate.
In about half the states, there's a flat fee for filing with probate court, ranging from $50 to $200. Other states set their fees based on the size of the probate estate. For probate estates worth $350,000 to $600,000, fees range from about $250 to $600.
What's in Your Estate?
Many assets don't go through probate at all. IRAs, life insurance policies with named beneficiaries and payable-on-death accounts all bypass probate. So does property owned in joint tenancy because the surviving owner automatically inherits the deceased's share. So a $1-million estate with most of its assets in an IRA and joint tenancy accounts may not contain much property that's subject to probate. If you don't use these types of accounts, you might consider doing so; they're easy and inexpensive to create.
Many states have simplified the process for smaller probate estates. New York has a fast-track procedure for probate property worth less than $20,000. In California, the threshold is $100,000. With a simplified process, once your executor starts the proceedings, he or she may not have to appear in court again until the final papers are filed showing that debts have been paid and assets distributed. The entire process could take as little as three months, the amount of time usually set aside to give creditors an opportunity to make claims.
Some Extra Assistance
Even if your probate estate is simple, you'll probably want a lawyer's help. There's little information available to guide you through your state's probate on your own, and mistakes could delay the process. Lawyers' hourly fees are probate's biggest expense. Some states, such as California, have a set fee schedule, with the average fee being about 3% of the estate's gross value. Thus, a lawyer in California might charge about $11,000 to guide a $400,000 estate through probate.
Some states are trying to make the process less dependent on lawyers. California and Wisconsin have a simplified procedure allowing executors or administrators to handle the job themselves. (In Wisconsin, a court clerk helps you complete the forms. California has posted its probate forms online.)
For additional help, consult two excellent books published by Nolo that walk you through the probate process, Plan Your Estate ($45) and How to Probate an Estate in California ($50).
GETTING STARTED
