Probate Is Not As Messy as It Used to Be

There are aspects of probate to be avoided, but it can also protect the rights of recipients and the wishes of the dead person.

Probate is the judicial way of transferring property to beneficiaries and settling outstanding debts. Probate was once a long procedure, requiring validation of each element of the decedent’s estate--everything from the will to the list of creditors.

However, since most states adopted the Uniform Probate Code in the late 1960s, the process has been simplified, says James Cavanaugh, an academic with expertise in estate planning at the College for Financial Planning.

Unless the estate is contested, the procedure can be carried out by the executor of the will. However, contested estates still must be settled in Probate Court.

Using a will substitute, usually a type of trust, can avoid the delays of up to several years often associated with the probate of an estate by transferring title to the property immediately upon death to a designated individual. In the case of a trust, that individual would be the trustee named by the decedent.

Historically, the most common method of avoiding probate is through a revocable trust, sometimes called a living trust. The grantor transfers, by title, all of his or her property into this trust, which can be revoked at any time.

At the grantor’s death, responsibility for everything in the trust is assumed by the trustee. Following the terms of the trust, the trustee may then make distributions to beneficiaries immediately, without probate. Nothing in the trust may be disputed. However, if a beneficiary of the trust believes its terms are not being carried out properly, the beneficiary may take the matter to Probate Court.

Anyone in their 50s who has significant property beyond a car, house and pension, or has complex family relationships or a child with a disability should seriously consider establishing a revocable trust, Cavanaugh says.

A revocable trust is also ideal to cover assets that are not easily valued, divided or administered. These include stock in a closely held corporation, limited partnerships or such real estate as commercial property or a vacation home.

The terms of the trust can detail what is to be done with each item, making settlement of the estate possible without a long probate.

Estate taxes and administrative costs can be minimized with various trust arrangements, Cavanaugh says. But transferring all the assets of an estate to a trust is not always a good idea.

“If all assets are tied up in a trust, there is no good way for creditors to be identified and paid,” Cavanaugh said. Probate provides a creditor-notification process, usually through local newspapers, which trusts do not. Probate also establishes a deadline for creditors to come forward, allowing the executor to determine when the estate may be settled.

Cavanaugh recommends leaving at least one liquid asset, such as a bank account, to be settled in probate. Those funds can be used to pay debts with creditors, while leaving other assets in trust to be bequeathed to the various beneficiaries named by the decedent.

Another option is to buy a small life insurance policy and arrange for the proceeds to be paid into a bank account, which can be used by the executor to settle debts.

The use of probate vs. trusts and other will substitutes often is regarded as an either-or proposition, but Cavanaugh advises using both to satisfy creditors and provide for heirs.