I know what you're thinking: "Doesn't a Last Will and Testament take care of that?" In a word, "no." But in some cases and for certain assets, you can avoid probate. I'll explain that a little later.
Most state laws call for anyone in possession of a deceased person's will to file it in probate court as soon as possible and to file an application to open probate of the estate. In Delaware, the statute says this should be done within ten days.
What property and assets go through probate?
Here's a list of assets subject to probate:
- Property and assets held only in the deceased individual's name without a beneficiary designation. Examples include bank accounts, investment accounts, real estate and vehicles. The probate court must transfer the property into the names of the beneficiaries when there is no "TOD" (transfer on death) or "POD" (payable on death) beneficiary.
- Property and assets with a designated beneficiary who died before the asset holder.
- Property and assets with a designated beneficiary of "my estate."
What property and assets can avoid probate?
There are exceptions to every rule, but generally speaking, these assets can avoid probate:
- Property and assets jointly owned, with at least one surviving owner. This can include real estate and investment accounts.
- Property and assets with a living adult designated as the beneficiary. This can include life insurance accounts, bank accounts, investment accounts, and retirement accounts. In some states, this can even include your vehicle.
- Some property and assets held in a trust. Assets held in a revocable living trust can avoid probate but those held in a testamentary trust will go through probate.
What if my loved one only owned a small bank account and some personal belongings?
- "Small Estate" option. In some states, such as Delaware, a deceased who has no solely held real estate interest can avoid full probate if the remaining estate assets fall below a certain threshold. Instead of full probate, a much simpler and less expensive "Small Estate" process is followed.
So, if an estate's assets must go through probate, the process will include ...
Usually a Last Will and Testament designates an executor (or executrix), who is the person in charge of handling all details of the probate process. If the will doesn't name this person, or if there is no Will, you can petition the Court to be named as the personal representative. The personal representative is responsible for the following:
Identifying and Collecting Assets
The personal representative must identify the assets of the decedent. Sometimes this is simple, such as when a deeded house is on record with the Recorder of Deeds. Sometimes this can be more complicated, such as when there are small bank accounts that the decedent may even have forgotten. In most instances, the personal representative will want to open a bank account in the name of the Estate, which can be used to hold and distribute the liquid assets.
Paying Debts through Probate
The deceased's assets are first used to pay off any debts. Creditors receive notification of the debtor's passing through the probate process, and must make their claims against the estate within the statutory specified time frame. Remember that taxes are also an estate debt (just as a refund would be an estate asset). The estate's executor must file a personal income tax return for the final year of the deceased's life, then pay any income tax owed as well as any estate taxes owed with funds from the estate. In some cases, the executor must liquidate estate assets to cover tax liabilities.
The executor can reject a creditor's claim if they think it's false. But the creditor can then petition the probate court to decide if the estate must pay what they claim is owed. The executor uses the estate's assets to pay any of the deceased's final bills.
Sometimes a person who passes away has debt but few assets. There is a strict, statutory order of payments, and "lower level" creditors will sometimes go unpaid if there are not sufficient assets to pay everyone in full. A person's debt does not pass along to anyone else, such as the deceased's children. The executor pays all valid debts and taxes for the estate during the probate process, before making a distribution of assets to the heirs.
Once all debts are paid, the executor can distribute the remaining assets to all beneficiaries listed in the Will, or to the heirs at law if there is no Will. The executor may need to establish a trust to hold any assets given to beneficiaries who are minors.
How long does the probate process take?
In Delaware, an Estate must be held open for a minimum of eight months from the time of death, and most estates take approximately one year from start to finish the probate process. In some instances, partial distributions can be made to beneficiaries prior to the completion of the process, and there are other things your attorney can do to make the process less laborious.
Strategic estate planning can help your loved ones bypass the probate process altogether. More on that coming up next ...