One of the questions I answer with great frequency for clients and acquaintances alike is – what is probate? A common follow up question I am usually asked is how to avoid probate.
What is Probate?
Probate is the process that we use to wrap up certain financial affairs of the deceased. The main objective is quite simple – follow the decedent’s wishes by transferring their assets to their heirs or beneficiaries.
In order to successfully complete the process, a number of steps must be taken. The first step is for the decedent’s will to be admitted to probate and the personal representative (commonly called “executor” or “executrix”) sworn in. This gives the personal representative the authority to manage the decedent’s assets. Upon completion of this step, the personal representative receives Letters Testamentary and may order short certificates which serve as notice they have authority to act in the official capacity as personal representative.
The personal representative must then marshal the decedent’s assets, provide certain types of notice to parties who may have an interest in the estate such as potential beneficiaries and creditors, pay just debts and taxes, provide a formal or informal accounting of the administration, and distribute assets to the appropriate parties.
Does Every Estate Administration Require Probate?
Not every estate administration requires probate. Jointly owned assets may pass by operation of law to the surviving joint owner or owners immediately upon death. Secondly, many assets pass to beneficiaries by a means other than probate because they are subject to beneficiary designations. Items such as IRAs or life insurance policies typically pay to the named beneficiaries selected by the decedent. Some bank accounts are subject to transfer on death (TOD) provisions, which makes them non-probate assets.
Probate assets are typically items that were titled in the decedent’s name alone that do not have a beneficiary designation or designate the decedent’s estate as the beneficiary.
Married couples, in particular, often do not require probate until the second of them passes away because it is common for the spouses to own all property jointly. Even so, it is worth meeting with an attorney upon the passing of a spouse to evaluate whether any action is required. There may be important tax and other issues to consider.
Should I Avoid Probate?
Clients sometimes express that they would like to avoid probate when they are asked about their estate planning goals. When we discuss their concern about probate, however, it often comes out that their fears are based on misconceptions.
A major fear that clients have about probate is that it is burdensome on their family. The reality of the situation, however, is that in Pennsylvania the process is usually not a major burden, especially if the family is represented by an experienced lawyer. It is true that there are a few extra steps that need to be taken to wrap up the affairs of a decedent with probate assets but the amount of extra work is not exponential.
A second fear clients have is that probate is expensive. Once again, the reality in Pennsylvania is that probate usually involves only a small added cost. Assets are not taxed differently depending on whether or not they are subject to probate for Pennsylvania Inheritance Tax purposes, either.
Because the probate process is a function of state law, it varies from state to state and may be more burdensome in some jurisdictions. This leads to some of the fears about leaving behind a probate estate – but they are overblown for Pennsylvania residents.
One Last Word
As you can see, probate is not a bad word in Pennsylvania. Many of the fears clients have about the process are overstated and based on misconceptions.
Pennsylvanians engaging in estate planning would be better served by ensuring their documents are up to date and drafted in conformity with their wishes on a big picture level rather than being concerned about avoiding probate.
Finally, those who wish to learn more about how to protect their estate so that they can pass on a legacy to their children may choose to read one of the many articles on this blog discussing early long-term care planning strategies. Unlike probate, the cost of long-term care is an issue many families should attempt to prepare for and avoid. To read an article I previously wrote about a strategy for protecting assets from long-term care, click here.