What to Know About Probate

What is probate and why was the probate process created?

According to Wikipedia, the free encyclopedia, the probate process is the legal method of resolving claims and distributing property of one’s estate. According to some of the probate information I located at http://estate.findlaw.com/probate/probate-overview and http://law.freeadvice.com/estate_planning/probate, these claims include any taxes due on the property as well as any claims from creditors. The probate court appoints someone to oversee the distribution of property. In most cases the person named in the will as executor is the same person appointed by the court. This person is responsible for settling all claims against the estate. They are also responsible for paying all attorney and probate fees incurred. In legalese, this person is termed a fiduciary.

Give the definition of, as well as the necessity for, a probate bond.

“A probate bond guarantees the duties of the fiduciary,”
http://www.jwsuretybonds.com/probate.htm/, the definition can be a little confusing, so I’ll try to break it down and explain things a little better.

A fiduciary might also be referred to as a guardian or executor. A probate bond is a guarantee that the court-appointed fiduciary is completing his duties fairly and legally. According to http://insurance.cch.com/rupps/probate-bond.htm, a probate bond is “a fiduciary bond required by a probate court, to protect the administration of a will, estate, or guardianship.” So a probate bond is insurance that persons appointed as guardians or executors will do their best in accordance with the laws to complete the probate process.

Some basic facts about probate.

Many people think that having a will exempts them from the probate process. Unfortunately that is not the case.

Another commonly held belief is that once a person dies, his bills die with him. This is another fallacy. For example: John owed money on a car he bought two years before his death. His daughter Sara doesn’t need the car so she decides to sell it. The amount John owed before he died was $10,000 and Sara only got $8,000 from the sale. John’s estate still owes the bank for the outstanding balance of $2,000. This example is extremely oversimplified, but I think it gets the point across.

Another thing I discovered during my research is that one can make easy money buying and selling probate properties. Let’s take a look at the practice of buying probate properties and selling them for a profit. Using John and Sara again, here is an example of buying and then selling probate properties: John died and left his house to his only child. There was nothing owed on the house; John owned it free and clear. In fact, except for a few small medical bills, there really wasn’t much to be settled in probate. Sara did have one problem though – she already owned a home where she lived with her husband and their kids. Her house was newer, bigger, and more importantly, it was across the country where they all lived, worked, and went to school. Her dad’s house was nice enough, but she didn’t want it and she didn’t want the hassle of selling it through an agent. In comes Jack who makes a living buying and selling real estate. Sara just wants to get rid of it, so she sells it to Jack for less than the appraised value. Jack turns around and sells it to someone else. Because he got such a good deal, he can afford to sell it fairly cheap and that means he’ll sell it quickly and move on to another probate property.

Finally, how can you avoid probate?

There is one final aspect of the process that I want to touch on, before I call this article complete and that is how to avoid probate.

The probate process can be rather lengthy. Not only does this mean that all assets/property in probate are frozen until the process is complete, it is also quite expensive, as well. Due to the expense and the time it takes, many choose to find a way to avoid probate. There are several ways, but in this article I will only cover the main one: living trust.

First, I want to mention some items that are not subject to probate. These funds are called beneficiary designations and they include such things as life insurance policies, retirement funds, and IRA’s to name a few. According to Findlaw at http://estate.findlaw.com/probate/probate-overview/probate-overview-avoiding-probate.html, the funds mentioned, “…pass directly to the beneficiary because they are considered contractual obligations to pay out a death benefit. These designations prevent the accounts from needing probate consideration.”

The most prevalent way to avoid probate is the execution of a living trust. A living trust is basically a fund to which a person transfers ownership of all property. From the point the trust is established, this property is owned by the trust; the individual does maintain control of the trust and can make changes to it at anytime. Once the person dies, whoever is named as beneficiary in the trust gains ownership of it, which of course includes all the property the trust owns.