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Probate is the process of settling the estate of
a deceased person. If the estate is beyond a
certain size and not structured properly, it may
need to be settled among the heirs in probate court.
In most states, when a person dies the assets of
that person become the property of the surviving
spouse without the need for probate. In states
where this is not automatic and for smaller estates,
property such as real estate, cars, bank accounts,
etc. can be held in joint tenancy between the spouses
so the surviving spouse will immediately receive
ownership. Everyone who has a positive net worth
should at the very least keep a will naming a primary
and secondary beneficiary to avoid potential problems
in probate and to make sure their assets pass to the
persons they wish.
In the will the estate holder names an executor to
execute the terms of the will and handle the
distribution of the estate's assets. If there is
no will and assets exist that are not held in joint
tenancy, a probate court will decide who receives
those assets and will appoint an administrator to
distribute and close the estate.
Probate Procedure
Property of the deceased held in joint tenancy with
rights of survivorship or other property that
contractually passes to another after death in most
cases will pass without the need for probate.
These can include bank accounts, real estate,
automobiles, proceeds from insurance policies on the
deceased and property held in living trusts.
For assets that go to probate, the court collects
and inventories the assets of the deceased and pays
any outstanding debts and taxes out of the assets.
Even with a will, there may be disputes during the
probate process. A claim on the estate can be
made to the probate court by anyone including
potential heirs unhappy with the property that they
were willed or, more likely, not willed. The
court will determine the validity of any such claims.
Avoiding Probate
An estate in probate can take months to settle and
distribute the assets to the proper heirs to the
estate. It can also incur a large expense in
legal and court fees that reduces the size of the
eventual estate.
Many people use living trusts to avoid having
assets go into probate. Upon death of the
trust's owner, the trust is instructed to transfer
ownership of the assets in the trust to the intended
heir. Such trusts may avoid some estate taxes
but once setup are irrevocable.
Unfortunately, multi-million dollar estates (under
current law) are subject to federal estate taxes.
Property included in the tax calculation include
property held in living trusts, life insurance
proceeds and most other estate assets net of
liabilities. Some trusts may be able to avoid
estate taxation, "the death tax", but laws are
constantly changing and the advice of legal counsel is
necessary to properly structure such instruments.
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