Probate Considerations
What is Probate?
Probate is the court supervised process of validating wills, ensuring that creditors and taxes are paid, and distributing assets to the rightful heirs.
What are Probate Assets?
There is often confusion between what constitutes taxable estate assets and what constitutes probate assets, but the distinction can be extremely important. Assets that will be included in your estate for death tax purposes include many assets you may not think of when considering your personal net worth, such as the proceeds of life insurance policies, amounts payable under pension, profit-sharing and other retirement plans, deferred income, and interests in trusts created by others.
Your probate estate may, however, be much smaller than your taxable estate and you may, in fact, have no probate estate whatsoever. Probate assets are those that pass under the terms of your will or under the laws of intestacy should you die without a will. Non-probate assets are those that:
- Pass by contractual beneficiary designations, such as life insurance proceeds or retirement accounts;
- Pass by P.O.D. (Payable on Death) Designation (for bank or brokerage accounts) or by T.O.D. (Transfer on Death) deed (for real estate);
- Pass by operation of law, such as property held as survivorship marital property or in joint tenancy with rights of survivorship; and
- Assets transferred during lifetime to a “Living Trust” which sets out terms for management and ultimate distribution of trust assets.
It is, therefore, essential that you coordinate the beneficiary designations of non-probate assets with your overall estate plan.
What are the Disadvantages to Probate?
- Probate costs can be significant.
- The probate process can result in substantial delays in transferring assets and closing an estate.
- Loss of privacy because the size and details of an estate in probate are matters of public record.
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