Long-Term Care: Settling Your Estate with Probate
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Settling your estate and designing your will is part of your long-term care planning. Probate is a word that is often preceded in advice columns by avoiding. What exactly is probate and why do so many people want you to avoid it?
Probate is the process of settling an estate. It is also the name of the state court that handles wills and estates, among other responsibilities. The probate court determines the validity of the will, reviews the executor's inventory of assets and list of creditors, and determines what debts should be paid and what taxes are owed.
After all these obligations are taken care of, the remainder of the estate is distributed according to the terms of the will. Failing to write a will is not a good way to avoid probate, because a court will be involved in settling your estate anyway.
Why are people so eager to avoid probate? For one thing, it can be costly. It involves court fees, attorney fees, and other fees, which can add up. Some costs are set; others may depend on a percentage of the value of the estate.
Secondly, it can take time. Heirs eager to get their share of the estate may be frustrated by the slow but steady process of probate. Time has to be allowed for creditors to be notified and to come forward, ownership of assets to be determined, and all the other details that have to be resolved and can complicate settling an estate. It can take 9 to 12 months to close a larger or complicated estate.
Many states have streamlined the probate process, allowing spouses and minor children to get the money they need to live on without waiting for the entire estate to be settled. Other states have a simple probate process for smaller estates that can be closed in weeks. They have also reduced some of the costs.
Probate addresses only certain assets in an estate. Joint bank accounts, pay-on-death accounts, life-insurance policies, retirement accounts, other assets with a named beneficiary, and property in trusts do not normally pass through probate.
There are different kinds of probate, depending on state law:
Small-estate: The simplest form of probate that can be used (but not in every state), for estates ranging in value from $1,000 to $10,000, depending on state law.
Unsupervised or independent: A reasonably simple and cheap form of probate used when the estate is more than the value of a small estate but doesn't require a lot of court supervision. It can be requested when all the beneficiaries agree (and consent, if the will requires consent).
Supervised: Typically applied to large estates and wills with complicated provisions, with the court playing a major role in approving every action. Supervised probate is used if the is contested, someone named in the will requests it, or the court is concerned about the executor's abilities.
If the will involves property in more than one state, the probate court in each state will be involved, adding to the costs.
One of the best ways to avoid the costs and delays of probate is to have a good estate plan in place. If the will is up-to-date and properly prepared, all the provisions are made in clear simple language, and the beneficiaries are advised about what they can expect (and won't be getting), the chances are that the will can be probated at minimum cost and with minimum delays.
Of course, the more money that is involved and the more people who will stand to gain from the will, the more likely it is that there will be complications. Even so, planning can reduce some of the potential problems.