PROS AND CONS OF PROBATE
Probate Definition: The court process by which a will is proved valid or invalid. The legal process wherein the estate of a decedent is administered.
Two main responsibilities of the probate court are to determine the validity of a will and to ensure that it is faithfully executed. Although most states have exemptions for smaller estates, a will ultimately falls under the jurisdiction of the probate court.
Similar to a will, a trust involves the transfer of assets. Testamentary trusts are subject to probate because they are created by a will at death. If you wish to avoid probate, one option may be to implement a “living” or inter vivos trust.
WHAT IS A LIVING TRUST?
A living trust is a legal document created during an individual's lifetime where a designated person, the trustee, is given responsibility for managing that individual's assets for the benefit of the eventual beneficiary.
Since there are both advantages and disadvantages to the probate process, let’s consider some of the following points to determine how probate could affect your estate:
Fair Estate Value. If your heirs believe your property has been overvalued, and therefore potentially increasing the estate tax, a lawyer or executor can consult with an independent appraiser. The judge may approve the new appraisal or choose a value between the independent appraisal and the court-appointed appraisal.
Protection from Creditors. Once an estate has been probated and its assets distributed, creditors cannot make any further claims against the assets.
Lower Legal Costs. Drafting a will is often less expensive than drafting a living trust or other legal documents in an attempt to avoid probate.
Higher Costs to the Estate. Probate can be a costly process. Fees are set by law in some states, and they may be based on gross, rather than net, values. They generally cover only “ordinary” services. If an attorney performs “extraordinary” work, the fees may be higher. The executor may also charge fees, and unless those fees are waived, the cost to the estate may double.
Delay on Transferring Assets. Settling an estate in probate can take a year or more. During the settlement period, assets in probate are often managed conservatively. In some states, it can take a month or more to receive court permission to sell an asset. This delay may prevent an executor from responding to sudden changes in market conditions. During probate, executors may choose to act conservatively to minimize their risk of financial liability.
Public Knowledge of the Estate. The probate process is a matter of public record, so a will is open to public scrutiny.
Probate laws, with their advantages and disadvantages, vary from state to state. Be sure to consult with a qualified legal professional to determine how the probate process may affect your estate, and whether a living trust may be an appropriate alternative.