What is Probate Estate?
After a person dies, their estate must be dispersed to the appropriate beneficiaries. This generally happens through a legal process known as probate. A probate estate is one that must go through this process before their heirs can take ownership. Not all estates must be probated, which is why it is important to know what criteria determine whether probate is necessary and the steps you can take to avoid the probate process as well as what to do when it is required.
What Happens in Probate?
When an estate goes through the probate process, an executor or personal representative must notify heirs and creditors and take inventory of all assets of the estate. Only certain assets must be included in probate, and those must be included in the inventory.
The executor or personal representative will also pay the debts of the estate during this time. They will file a final tax return and pay any taxes owed. Once all this is done, the remaining assets are distributed according to the will or the state law if no will exists.
How Probate Starts
The first step in probating an estate is to file a petition to open probate with the probate court. This is generally the county court where the decedent lived or had their property. Some states have a separate probate court, which handles only probate matters. An executor or other interested party can file the petition along with a copy of the death certificate.
Some states require this to be done within 30 days after the decedent person’s death while other states just signify it should be done in a timely manner.
When Must an Estate Go Through Probate?
Not all estates will go through the probate process. Each state has a list of requirements that allow certain estates to avoid probate. In most cases, it has to do with the size or value of the estate. Some states require the estate to be only personal property with no real property included. Others allow for real property but require there to be only one heir. To know if an estate must be probated, you should check with your state laws or a probate attorney.
What Assets are Included in a Probate Estate?
Certain assets must be included in the probate process. For instance, all assets that are listed with the deceased person’s name only must be probated. Property owned by the decedent as a tenant in common will also go through probate. This means that the person owned the property with other parties, but no one automatically inherits the share of the property when someone dies.
Assets that are payable to the deceased person’s estate with no beneficiary designated would also go through probate. If the decedent was owed money and wasn’t paid until after their death, those assets would be considered as part of the probated estate. Any items that belong to the decedent but aren’t declared in writing would likely be included in probate. Some examples include jewelry, furniture, household items, and personal belongings.
What Assets Can be Excluded from a Probated Estate?
Not all assets owned by the decedent must go through probate. Certain assets may be exempt for various reasons. For instance, assets with a designated beneficiary would automatically go to that person and not be included in the inventory of the estate for probate. A prime example is a life insurance policy with a child or other person listed as the beneficiary. Other types of assets in this category include bank accounts, retirement accounts, investment accounts.
However, these assets would be part of probate if the estate is listed as the beneficiary. Assets owned jointly with right of survivorship wouldn’t need to go through the probate process. In this situation, the surviving owner would automatically gain the deceased person’s portion of ownership for the asset. To know if an asset should be included in the inventory for probate, you can ask a probate attorney. They will know the laws for your state on which assets must be included and can provide legal advice.
How Small Estates Avoid Probate
Some estates in their entirety can avoid probate. Generally, their value must be under a certain dollar amount, which varies by state. Some states require that only one person will inherit while others require that there be no debt for the estate. Most states won’t allow estates that include real estate property to avoid probate.
Transferring Ownership for Small Estates
Once an estate meets the requirements to avoid probate, specific procedures must be followed for the heirs to transfer title or gain access to the assets. All states require that the death certificate be filed with the probate court. An affidavit is often used in this procedure to show that the person is entitled to the estate.
Avoiding Probate Through a Revocable Living Trust
Not all estates must be probated even if they are too big to go through small estates administration. An estate that has been placed in a revocable living trust doesn’t need to go through the probate process. The beneficiary of the trust becomes the person who manages the estate and takes ownership of the assets. They may choose to leave the assets in the trust with them as manager, or they may transfer ownership to them personally and dissolve the trust.
Probating Assets Not Part of a Trust
While the estate can avoid probate as part of a trust, any assets not included in the trust would be subject to probate. Sometimes, a person makes an addendum to cover other assets gained after the trust was established.
Validating the Will
One of the first steps in probating an estate is to determine if the will is valid. This is another area which can vary by state. Many states require two witness signatures, which show that the decedent was of sound mind and not forced into the terms of the will. Other states allow for a notarized signature to validate the will.
Claims Against the Will
During this time, someone may bring forth a second will, which they claim invalidates the original will. The probate court will need to determine which will is valid before any other steps of probate can happen. Once the will has been validated, the probate court will grant the petition for probate to be opened for the estate. The executor or personal representative will receive documents or letters testamentary, which allows them to act on behalf of the estate.
What Happens to an Estate in Probate?
While an estate is in probate, the executor or personal representative must secure and manage the assets. This may include getting certain assets into a physical location or taking steps to protect those assets. For instance, the executor would pay the utilities on a home or business property or other real estate. They might need to pay employees in a business owned by the decedent.
The executor or personal representative also takes inventory, which may include searching for assets owned by the decedent. They may need to liquidate some of the assets to pay any outstanding debts. This step can take a great deal of time, depending on the size of the estate and the complexity of the asset. For instance, it will take longer to sell a house than it would a vehicle. Many times, the court must approve such an action before it can be completed.
Selling Assets in a Probate Estate
The executor or personal representative may need to sell assets in a probate estate to distribute among the heirs. For example, they may have to sell the deceased person’s home, so the proceeds can be divided among the heirs. Another challenge is when the estate has a business that must be liquidated. The executor must take steps to close the business, which often means compensating the employees and giving notice as well as filing any necessary documentation. All assets within the business must be sold, including the building and property if owned by the estate. Selling assets can take months to complete, especially if an appraisal is necessary. The court will need to approve any transaction before it can be completed.
Distributing Assets in a Probate Estate
One of the last steps for a probated estate is to distribute any remaining assets to the heirs. For all assets that have been liquidated to cash, it just means giving the funds to the beneficiaries. However, some assets may be passed on to the heirs in whole. For instance, the decedent may have given her granddaughter a special piece of jewelry or her son a sports car. If the jewelry is insured, the policy would be transferred to the granddaughter while the title of the sports car would change to the name of the son. It is the executor’s job to make these changes for distribution to be finalized.
Closing a Probate Estate
Once all assets have been distributed, the only thing left to do with the estate in probate is to close it. Just like with opening probate, the executor must file a petition to close it with the court. The court often requires an accounting of the probate process, which is completed by the executor or an accountant. Once the probate court approves the petition to close probate, the estate is closed out. While this seems like a simple step, it is one of the most important and can easily be forgotten. Many executors forget that distributing the assets of the estate isn’t the same as closing. Others simply get busy and don’t think about initiating a formal losing.
Not Closing Probate
When you fail to close probate, you leave the estate open to other issues. States have deadlines for when you can initiate action against an estate, which doesn’t start until the estate has been closed. Failure to close probate can also get the executor in trouble because they didn’t complete their duties.
Certain states require probate to be completed in a specific timeframe after the date of death for the decedent. Closing probate shows that the requirement has been met.
Claims Against an Estate
During the probate process, interested parties can file claims against the estate. They may take different forms:
Dealing with the Challenges of a Probate Estate
Probating an estate is an often challenging, complex process. While it is many times necessary, there are instances where it can be avoided. It’s helpful to know how an estate in probate works and your rights as a beneficiary. If you have more questions or concerns, it’s a good idea to talk to a probate attorney who can guide you through the process with solid legal advice.