The probate court has competence in administering decedents' assets, such as financial investments, real estate, and bank accounts. Considering the number of disputes arising from administrating the deceased's estates, the probate court's role in the legal system cannot be understated. Also, with estate planning - a critical part of ensuring your family and other loved ones are cared for after your demise - it becomes necessary to fully understand the probate process and how to avoid it or remove factors that may elongate it.
What is Probate Court?
A probate court is a local or state court specialized in handling assets, property, distribution of assets, and a decedent's debts. The court plays a critical role in the United States legal system, validating wills, appointing executors, and ensuring that the decedent's assets are distributed fairly, either in accordance with the deceased's wishes or state law if no will exists. Probate courts also serve as a forum for resolving any disputes related to the estate, including will contests, disputes over asset distribution, and creditor claims.
The probate court in the U.S. can be traced to the colonial era, with its history steeped in English traditions of Chancery or religious courts with jurisdiction over guardianships, administration of estates, and the probate of wills. In the English tradition, probate courts were established to handle matters relating to the estates of deceased persons and manage legal disputes related to the administration of the deceased's estate. After the United States' independence, some states adopted probate court systems and allowed the courts to function mainly under the same scope of operations as experienced under the colonial era. The first court of the probate kind was established in 1784 in Massachusetts. A few decades later, probate courts were already established in several states, with these jurisdictions developing their own laws and procedures to guide probate issues. Today, probate courts exist in many jurisdictions in the United States, and states that do not have a probate court will have one of its courts perform the role of a probate court in its legal system.
Types of Cases Handled by Probate Court
Probate courts handle different types of probate matters, such as those relating to:
Estates of Deceased Individuals
It may be required that a deceased individual's financial affairs and property be supervised in a court process within the United States Court System. This may happen because the decedent decided for that to happen, failed to leave a will behind, or as a result of not using legal devices to avoid the need for probate. In these types of probate cases, the probate court can admit a properly executed will to probate, appoint a fiduciary to manage the estate of the deceased, administer and settle the account of the fiduciary, and order the distribution of the estate assets. The probate court may also hear and determine an application for the summary release or release of smaller estates for formal administration.
Guardianships and Conservatorships
Guardianship and conservatorship cases are commonly heard in the probate court. Guardianship in the probate court refers to assigning an individual's decision-making authority to another party due to that individual's inability to make those decisions for themselves. Guardianships are common for elderly individuals and minors who are orphans or have previous guardians. It may be required for persons who are handicapped (typically mentally) and or with a mental illness preventing them from making their own decisions.
Probate conservatorship refers to a proceeding in which a judge appoints a responsible individual to handle the financial matters of another adult who is unable to make such decisions for themselves.
The main difference between guardianship and conservatorship cases handled in probate court is that guardianship proceedings involve assigning a responsible individual to make decisions that impact an individual's care and well-being, while conservatorship proceedings involve designating a responsible person or making decisions related to an individual's assets, property, and estate.
Trusts
Probate courts can supervise the administration of trusts created by a will or resolve disputes about non-testamentary trusts. The probate court can appoint a trustee if none is nominated in the trust document or the assigned trustee is unwilling to serve in such a capacity. A trustee can also be removed for misconduct or incapacity by a probate court. A trustee is an entity or individual appointed to administer and manage assets or property held in a trust to benefit beneficiaries.
Other cases
Probate courts may also handle cases such as adoptions, involuntary hospitalization of the mentally ill, issuing marriage licenses, the presumption of death matters, end-of-life decisions, and requests for name changes. In some states, probate courts handle issues relating to the termination of parental rights by the biological parents and granting parental rights to new individuals, such as the adoptive parents.
The Probate Process
The probate process's goal is to ensure the proper distribution of the deceased's estate. This process involves validating the deceased's will if one exists, and managing their assets, debts, and final affairs.
Filing a petition
A probate petition is usually filed by the executor in the decedent's will. The person filing the petition to the court must file the original will and a copy of the deceased's certified death certificate. The executor is usually the decedent's surviving spouse, adult child, or other family member. If the assigned executor fails to initiate a probate process, another interested party, such as a creditor, may petition the court to kickstart the probate process.
A probate process is usually filed in the probate court in the county where the decedent lived prior to their death. However, an ancillary probate process may be required in another state if the decedent owned property in the other state.
Notification and Hearing
One of the first responsibilities of the executor is to notify interested parties of the filing of the probate petition with the court. These interested parties include the heirs and beneficiaries named in the will. If no will exists, the executor must notify the relatives and family members. In addition to heirs and beneficiaries, creditors and parties with financial interest in the assets and property must be notified. For instance, the executor may need to notify the deceased's utility companies, mortgage lenders, and other service providers to ensure transparency and allow interested parties to participate in the probate process or contest the will, as applicable.
Upon notifying concerned parties, the probate process proceeds to hearings and procedures. At the initial hearing, the probate court formally appoints the executor and validates the will (if it exists). At this hearing, interested parties can raise objections to the will. Depending on the circumstances in the case, further hearings may be required to resolve disputes, approve the sale of assets or property, and handle other matters that may need judicial oversight.
Managing and Distributing the Estate
An important step in the probate process is taking inventory of the assets and property owned by the decedent and determining their value. This process involves appraising the bank accounts, investments, and other personal items of the deceased. The executor must note any asset or property not included by the testator in the will. For transparency, this appraisal must be submitted to the probate court.
After the inventory appraisal, the will executor must pay outstanding debts and taxes. To achieve this, the executor and the court will allow creditors to file claims against the estate in probate proceedings. After reviewing the claims, the executor will pay all valid debts and taxes using funds from the estate.
Once all taxes and debts have been cleared, the remaining assets may be distributed to the rightful beneficiaries. To achieve this, the executor must follow the instructions stated in the will or follow intestacy laws in the distributions if no will exists. The distribution must be done with court approval, and the executor must be accountable to the court.
Common Challenges in Probate Court
Understanding the challenges in probate court may be necessary for anyone looking to ensure a smooth distribution of assets when they die. Some of the common difficulties experienced in the probate process include the following:
Disputes over Wills and Estates
If beneficiaries are unsatisfied with the distribution of inheritances in the will, issues may arise in the form of disputes. Family conflicts may arise over matters like ambiguous wording in the will or selling a family home. There may also be misunderstandings regarding inheritance and challenges to the will's validity, which may strain family ties.
Also, if the interested parties in a will are not satisfied with the terms of the document, they may contest a will, dragging out the probate process. Contests may happen if concerned parties suspect fraud, undue influence on the decedent, mental incapacity of the deceased, or if the will misses specific requirements for validity.
Legal and Financial Complexities
The probate process can be more complex when it concerns large or complex estates and when dealing with debts and creditors.
Appraising assets valuation, financial advisors, and professional appraisers may be required in large estates involving several investments, businesses, real estate, and personal property. Compliance with laws in the jurisdictions where the assets are located is important if international assets are involved. In addition, the presence of several beneficiaries in a large estate will elongate and complicate the asset distribution process.
Another significant legal and financial complexity that may arise in probate processes is if there are insufficient liquid assets to offset outstanding debts and taxes the decedent owes. In such a case, the executor must sell assets and negotiate settlements with creditors. Furthermore, the existence of some loans, contested claims, and joint debts may complicate the financial side of settling outstanding debts.
Time and Cost Considerations
Probate proceedings may take several months or years to complete, depending on the complexities of the case. For instance, the executor nominated in the will may refuse to serve, elongating the probate process as the court must appoint an executor or administrator. Delays may also occur if there are contests to the will, estate tax issues, selling large estates, and incompetence on the executor's part.
Legal fees, administrative expenses, and court costs can reach vast amounts during the probate process, reducing the value of an estate. This can reduce the value of what is eventually distributed to a beneficiary. Overall, the delay in the distribution of assets may cause uncertainties and financial strain for beneficiaries.
How to Avoid Probate
When you want to avoid the complicated transfer of assets under a probate process, there are proactive steps to reduce the cost and time associated with probate or bypass the process altogether. These steps include:
Establishing Living Trusts
Setting up a living trust is one of the common ways people avoid the probate process. A living trust is an account designed to hold nearly anything of value, such as real property, cars, and jewelry. When a living trust is established and your property is transferred to the trust, the property leaves your estate and is no longer yours. Hence, assets held in a trust account do not pass through the probate process. In the trust document, you can outline how you want the property to be divided. Also, you can designate a trustee to manage the assets held in the trust account and distribute property to the beneficiaries after your demise. Since the probate process takes time, setting up a living trust allows your loved ones to get the property faster.
Joint Ownership of Property
Joint ownership of property is often used to avoid the lengthy process of probate actions. Joint ownership can be in any of the following forms:
- Joint tenancy with rights of survivorship: When one owner passes away, property owned in joint ownership with rights of survivorship usually automatically transfers to the surviving owner or owners without a probate process. Joint ownership typically works fine when partners or couples acquire vehicles, securities, real estate, bank accounts, or other valuable property together. A joint tenant in joint ownership does not necessarily mean a spouse. For instance, four children may have inherited real property and may all be on the deed as joint tenants holding an equal quarter share. In such a case, if one child dies, the deceased's share of the property would be divided evenly between the surviving owners. In such a case, the law considers the gift transfer subject to any applicable gift tax. Note that without the right of survivorship clause, family members of the deceased may inherit the deceased's share of a joint property. Consequently, a probate process will be required to distribute the asset in such a circumstance.
- Tenancy in common: In this form of joint ownership, the tenants or joint owners may own different property shares and may sell their share or pass it on as inheritance. This form of joint ownership does not avoid the probate process.
- Tenancy by the entirety: This form of joint ownership is available only to married couples, persons in domestic relationships or civil unions, and, in some states, same-sex partners registered with the state. This is similar to joint tenancy as ownership is treated as it is in tenancy with the right of survivorship
- Community property: This form of joint ownership is open to married persons who own community property or live in community property states, such as California, Arizona, Wisconsin, Nevada, and Alaska. If you hold a property in this form of joint ownership with the right of survivorship, when one spouse dies, the property is automatically transferred to the surviving spouse without the need for probate proceedings. If the property is held without the right of survivorship, a probate process may be required as a decedent's share of the joint property may be assigned or distributed to anyone. Some states, such as Texas and California, allow a surviving spouse to transfer community property without the right of survivorship outside a probate process.
Beneficiary designations
POD and TOD accounts can be used to bypass probate. A payable-on-death or transfer-on-death account is an account in your name that can be transferred to a beneficiary after you pass away. While you are alive, the beneficiaries of the account do not have a right to the account. In that period, you can spend the funds in the account, close the account, or remove and add designated beneficiaries.
A POD or TOD functions like other accounts except that it automatically transfers to designated beneficiaries after you die. A family member, friend, or recognized charity can be the designated beneficiary. If allowed under your state laws, you may be able to assign an alternate beneficiary if the primary beneficiary dies before you.
The primary difference between a payable-on-transfer account and a transfer-on-death account is the kind of assets held in the account. A POD is added to a bank account, such as a savings account, checking account, money market account, and certificate of deposit. On the other hand, a TOD can be added to an investment account, including a brokerage account, individual retirement account, 401(k), and an account holding securities. Also, in a POD, the account assets are transferred to beneficiaries after the demise of the individual who added the POD designation to an account. In contrast, in a TOD designation, account ownership is transferred to beneficiaries.
If you have retirement accounts and insurance policies, naming beneficiaries for these accounts is an effective means to avoid probate for such assets. By naming beneficiaries for such accounts, you have a binding agreement with the institutions where the accounts are created, ensuring the funds in the accounts are distributed to the nominated beneficiaries after your demise without having to go through the probate process.
Probate is the process of validating a decedent's testament or will and administering their estate. Probate courts play a crucial role in the legal system, handling other specialized cases such as trusts, guardianships, conservatorships, marriage licenses, adoptions, and the termination of parental rights.
A probate case begins when the executor of a will files a probate case in the probate court. The executor then notifies interested parties of the probate case. Once the probate case is in court at the first hearing, concerned parties may raise objections for different reasons if the need arises.
A probate case may drag out in the probate court for different reasons, including legal and financial complexities and disputes over the will and estates. To avoid the probate process, you can establish a living trust, consider joint ownership of property options, or via payable on death and transfer on death designations on your account.
