What is probate court, and why should it be avoided?

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If you’ve spent any time estate planning (and you absolutely should, whether you’re setting up a trust or a will), you might have heard of “probate.” You might even know it’s something to be avoided if possible. But you still aren’t quite sure what it is, why it’s used, or what can be done to avoid it.

Let’s make it simple: Probate is the legal process of authenticating your will and approving your will’s executor, and it’s done through the courts. This is done to verify ownership of the assets included in your estate, assess their value, and then transfer them to the rightful owners upon your death. In addition, any taxes on the estate, and any debts owed by your estate, are paid. This is all done in, you guessed it, probate court.

As you can probably tell, this can potentially be a lengthy and costly process. Keep reading to learn more about probate, probate court, and how you can ensure your belongings go to the people you want them to, as seamlessly and affordably as possible.

What is probate court?

Death is a natural part of life, so it should go without saying that you might want to plan for it and decide what will happen to your belongings once you move on. (A great first step? Getting term life insurance to provide financial coverage to your loved ones in the event that the worst should happen.)

Creating a will is the most common way to determine what happens with your possessions when you die. When you leave a will, the probate process will make sure the document is authentic and that ownership of all assets in the will are valid. Upon validating the will, the court appoints the person named by the deceased as executor to administer the estate.

If you don’t leave a will, your estate still goes into probate, but suffice it to say this makes the process more complicated. Perhaps just as importantly, it means your wishes might not become reality, because the court has no way of knowing how you want your assets distributed, and to whom.

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If a will is a sort of road map for your stuff after you die, going to probate without a will is like going on a road trip without a map. (But less fun. And more expensive.)

If you leave a will, you’ll have named an executor to run point on your assets. (If you don’t, the court will appoint one, which isn’t fun for anybody.)

The executor notifies creditors, lenders, utility companies, or other entities that provided services and might be owed money. After the notices are made, the estate’s assets must be inventoried. The court will settle any debts and distribute the assets according to state probate laws. This can take several months or years to complete, especially if there is real estate or other large-value assets involved.

State laws also affect how belongings are passed on after death. There can be issues with your estate if you leave something in your will that you are not legally able to pass on. For example, if you leave your house to your daughter in your will, but in probate, another claim to that house turned up because the title search didn’t uncover it, your daughter might not get the house. Ownership would need to be determined in probate court.

Once debts are paid and assets distributed, the estate is closed. When it is closed, it is very difficult to contest the findings of the court and the distribution of assets.

Why should probate court be avoided?

It is in most people’s best interest to avoid probate because of the time it takes and the possibility that assets will not go to the desired people. Why? Simply put, it can be costly, slow and public.

In some states, for example, courts charge $4 for every $1,000 of gross estate assets. If you have an estate worth $100,000, for example, your heirs would need to pay the court $4,000 of their inheritance — a large amount of money, especially considering it can be avoided with proper estate planning.

And then there’s time. If you have a thorough legal will, this simplifies the probate process tremendously. If you have a trust, you can bypass probate altogether, ensuring your loved ones receive their inheritance — money, property, your prized baseball card collection — in a timely fashion.

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Finally, there’s the fact that probate is a court proceeding, which means it’s public. You might not want, say, certain members of your family to know what you left to other members of your family. If you can avoid probate, you can ensure these proceedings are kept private.

How do you avoid probate court?

A will

As mentioned earlier, a will is one of the most popular ways to ensure your loved ones receive the assets you want them to. Wills should be explicit in that they include everything you legally own, who the beneficiaries are, and who is receiving what. It’s important to note that a will does not let you skip probate entirely, but it does speed up the process.

If you’re an eligible Haven Term policyholder, you can enjoy no-cost trust and will services from Trust & Will through our Haven Life Plus bonus rider. Heck, you can make a legally binding will online during your lunch break. Simple.

A living trust

You can potentially avoid probate entirely by creating a trust, which is a financial entity that can protect and distribute your assets. You need not be wealthy or affluent, contrary to the popular stereotype.

There are two popular types of trusts, revocable and irrevocable. For our purposes, we’ll focus on a revocable trust, also called a living trust. It is created with the ability to change the provisions or completely cancel. You can put any of your assets in a trust and designate anyone to be your beneficiary.

The trustee, or person you designate to handle the affairs of the trust, conducts business for the trust as instructed by you. Once placed in the trust, the assets are no longer part of your estate, so they do not become part of the probate process.

One common misunderstanding is that creditors cannot collect on assets held in a trust. This is not true of revocable trusts — creditors can still collect on assets in a revocable trust. In a revocable trust, ownership of assets is not transferred until the grantor —the person who initiated the trust and placed the assets in it — dies.

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Revocable trusts are generally best used in conjunction with a will because they reinforce the provisions in the will. For example, the will might specify which beneficiary gets a specific asset. The trust holds the asset for the beneficiary, and the trustee ensures it gets to them when the conditions to pass it along are met.

(Just FYI: Creating an irrevocable trust is permanent. You cannot change the provisions or beneficiaries or cancel them without permission from the beneficiaries. All assets placed in the irrevocable trust are no longer counted as part of your estate, removing them from the probate process and your taxable estate. Additionally, creditors are not able to collect any assets you have in an irrevocable trust.)

Trusts are more complicated than a will, but you can also create one online with Trust & Will. (Again, eligible Haven Term policyholders can do so at no cost via Haven Life Plus.) You can also update from a will to a trust if and when you decide that’s necessary.

Oh, and fun fact: You can name a trust as a beneficiary on your life insurance policy. It’s complicated, but it might make sense for some people.

Distributing assets while you’re still alive

Want to avoid probate, or at least minimize the pain? Distribute your money, property, etc., while you’re still here, to the extent possible. This reduces your estate’s size, by definition, so it reduces the cost and expense of going through probate. Doing so might also bring tax advantages, too.

Consider POD

There is something called a “payable on death” bank account. You set aside a certain amount of money, and when you die, that money goes to the person you’ve designated. Talk with a personal finance advisor to learn if this makes sense for you.

Understanding what probate court is is the beginning of avoiding it. Now that you know how, make sure you’ve planned for the rest of your financial legacy by getting a term life insurance policy in place. Start by getting a free online quote, your first step toward enjoying peace of mind about your loved ones’ futures.