James R. Balmforth: What Does Probate Actually Do?

Probate is the court supervised process of authenticating a last will and testament if the deceased made one. It includes locating and determining the value of the decedent’s assets, paying his final bills and taxes, and, finally, distributing the remainder of the estate to his rightful beneficiaries. Each state has specific laws in place to determine what’s required there to probate an estate. These laws are included in the estate’s “probate codes,” as well as laws for “intestate succession” when a decedent dies without a will. Probate is still required to pay the decedent’s final bills and distribute his estate when he dies without a will. Although the laws governing probate can vary from state to state, the steps involved are generally very similar regardless of whether a will exists.

Probate is the official way that an estate gets settled under the supervision of the court. A person, usually a surviving spouse or an adult child, is appointed by the court if there is no Will, or nominated by the deceased person’s Will. Once appointed, this person, called an executor or Personal Representative, has the legal authority to gather and value the assets owned by the estate, to pay bills and taxes, and, ultimately, to distribute the assets to the heirs or beneficiaries. The purpose of probate is to prevent fraud after someone’s death. Imagine everyone stealing the castle after the Lord dies. It’s a way to freeze the estate until a judge determines that the Will is valid, that all the relevant people have been notified, that all the property in the estate has been identified and appraised, that the creditors have been paid and that all the taxes have been paid. Once all of that’s been done, the court issues an Order distributing the property and the estate is closed. Not all estates must go through probate though. First, if an estate falls below a certain threshold, it is considered a “small estate” and doesn’t require court supervision to be settled. Second, not all assets are subject to probate. Some kinds of assets transfer automatically at the death of an owner with no probate required. The most common kinds of assets that pass without probate are:

• Joint Tenancy assets-when one joint tenant dies, the surviving joint tenant becomes the owner of the entire asset, without the need for a court order. This is called “right of survivorship”

• Tenancy by the Entirety or Community Property With Right of Survivorship-these are forms of property ownership that function like joint tenancy, in that the survivor owns the entire property at the death of the other tenant, but are only available to married couples.

• Beneficiary Designations-retirement accounts and life insurance policies have named beneficiaries. Upon the death of the account or policy owner, these beneficiaries are entitled to the assets in the account or the proceeds of the policy.

• Payable on Death Accounts/Transfer on Death Accounts-bank and brokerage accounts can have designated beneficiaries, too. The account owner can fill out forms to designate who should receive the account assets after their death.

Third, if a decedent had created a Living Trust to hold his or her largest assets, than that estate, too, won’t go through probate, unless the assets left outside of the trust add up to more than Utah’s small estate limit. That, in fact, is why that Living Trust was created, to avoid probate after the death of the trust’s Grantor. But for estates in Utah that exceed the small estate’s threshold, and for which there is either no Will, or a Will (but not a Living Trust), probate will be required before an estate can be transferred to the decedent’s heirs or beneficiaries. The general procedure required to settle an estate via probate in Utah is set out in a set of laws called the Uniform Probate Code, a set of probate procedures that has been adopted, with minor variations, in 15 states, including Utah. In Utah, under the UPC there are three kind of probate proceedings: informal, unsupervised, and supervised formal.

Informal Probate

Most probate proceedings in Utah are informal. You can use it when the heirs and beneficiaries are getting along, there are no creditor problems to resolve and you don’t expect any trouble. The process begins when you file an application with the probate court to serve as the “personal representative” of the estate. (This is what most people think of as the “executor”). Once your application is approved, you have legal authority to act for the estate. Usually you’ll get what’s called “Letters Testamentary” from the court.

Once you get the letters, you need to do these things:
• Send out formal notice to heirs, beneficiaries, and creditors that you know of.
• Publish a notice in a local newspaper to alert other creditors.
• Provide proof that you’ve mailed notices and published the notice.
• Prepare an inventory and appraisal of the estate’s assets.
• Keep all the property safe
• Distribute the property (when the estate closes)
Once the property’s been distributed, you close an informal proceeding by filing a “final accounting” with the court and a “closing statement” that says you’ve paid all the debts and taxes, distributed the property, and filed the accounting.

Formal Probate

A formal probate, even an unsupervised one, is a court proceeding. That means that a judge must approve certain actions taken by the Personal Representative, such as selling estate property, or distributing assets, or paying an attorney. The purpose of involving a judge is to settle disputes between beneficiaries over the distribution of assets, the meaning of a Will, or the amounts due to certain creditors. The informal probate process won’t work if there are disputes, so that’s when the court gets involved.

A supervised formal probate is one in which the court steps in to supervise the entire probate process. The court must approve the distribution of all property in such a proceeding.

Most states have laws in place that require that anyone who is in possession of the deceased’s will must file it with the probate court as soon as is reasonably possible. An application or petition to open probate of the estate is usually done at the same time. Sometimes it’s necessary to file the death certificate as well, along with the will and the petition. Completing and submitting the petition doesn’t have to be a daunting challenge. Many state courts provide forms for this. If the decedent left a will, the judge will confirm that it is, in fact, valid. This typically involves a court hearing, and notice of the hearing must be given to all the beneficiaries listed in the decedent’s will as well as his heirs those who would inherit by operation of law if he had not left a will. The hearing gives everyone concerned an opportunity to object to the will being admitted for probate maybe because it’s not drafted properly or because someone is in possession of a more recent will. Someone might also object to the appointment of the executor nominated in the will to handle the estate.

The judge will appoint an executor as well, also sometimes called a personal representative or administrator. This individual will oversee the probate process and to settle the estate. The decedent’s choice for an executor is typically included in her will, but the court will appoint next of kin if she didn’t leave a will, typically her surviving spouse or an adult child. This individual isn’t obligated to serve, he can decline and the court will then appoint someone else. The appointed executor will receive “letters testamentary” from the court a fancy, legal way of saying he’ll receive documentation that allows him to act and enter into transactions on behalf of the estate. This documentation is sometimes referred to as “letters of authority” or “letters of administration.” It might be necessary for the executor to post bond before he can accept the letters and act for the estate, although some wills include provisions stating that this isn’t necessary. Bond acts as an insurance policy that will kick in to reimburse the estate in the event the executor commits some grievous error, either intentionally or unintentionally that financially damages the estate, and, by extension, its beneficiaries. Beneficiaries can elect to unanimously reject this requirement in some states, but it’s an ironclad rule in others, particularly if the executor ends up being someone other than the individual nominated in the will or if he lives out of state.

The executor’s first task involves locating and taking possession of all the decedent’s assets so she can protect them during the probate process. This can involve a fair bit of sleuthing sometimes some people own assets that they’ve told no one about, even their spouses, and these assets might not be delineated in their wills. The executor must hunt for any such assets, typically through a review of insurance policies, tax returns, and other documentation. In the case of real estate, the executor is not expected to move into the residence or the building and remain there throughout the probate process to “protect” it. But he must ensure that property taxes are paid, insurance is kept current, and any mortgage payments are made so the property isn’t lost and doesn’t go into foreclosure. The executor might literally take possession of other assets, however, such as collectibles or even vehicles, placing them in a safe location. He’ll collect all statements and other documentation concerning bank and investment accounts, as well as stocks and bonds.
Date of death values for the decedent’s assets must be determined and this is generally accomplished through account statements and appraisals. The court will appoint appraisers in some states, but in others, the executor can choose someone.

Many states require that the executor submit a written report to the court, listing everything the decedent owned along with each asset’s value, as well as a notation as to how that value was arrived at.

The executor can petition the court for permission to distribute what is left of the decedent’s assets to the beneficiaries named in his will. This usually requires the court’s permission, which is typically only granted after the executor has submitted a complete accounting of every financial transaction she’s engaged in throughout the probate process. Some states allow the estate’s beneficiaries to collectively waive this accounting requirement if they’re all in agreement that it’s not necessary. Otherwise, the executor will have to list and explain each and every expense paid and all income earned by the estate. Some states provide forms to make this process a little easier. If the will includes bequests to minors, the executor might also be responsible for setting up a trust to accept possession of bequests made to them because minors can’t own their own property. In other cases and with adult beneficiaries, deeds and other transfer documents must be drawn up and filed with the appropriate state or county officials to finalize the bequests.

The Probate Process

If you have a will which names an executor, then they will start the process by filing the appropriate paperwork with the local probate court. It is highly recommended that the executor hire an attorney to handle this paperwork, and to help prove the validity of your will. The executor, or their legal representative, will then need to supply the court with a list of your property, debts, and beneficiaries. Once this has all been established, they can begin to pay debts and transfer property. If you do not have a will at the time of your death, the process will be similar however, the executor of your estate will be appointed by a judge. Only after all property, beneficiaries, and outstanding debts and taxes have been established, can the probate court start to pay debts and transfer property to the new owners. Since you did not name beneficiaries, the court will follow state laws to determine who will inherit what, and this can be a very lengthy process.

Anyone with a basic understanding of estate planning knows that one of the primary benefits of having a living trust is to avoid probate. Nevertheless, unless you are an attorney or have been personally involved in a probate proceeding in the past, few people have an understanding of what probate really is and why it is not recommended for most estates. Probate is a court supervised process for administering and (hopefully) distributing a person’s estate after their death. When a person dies leaving property (especially real estate) in their name, the only way to transfer ownership from the deceased owner’s name to the name of their heirs is for a court to order the transfer through the probate process. In other words, since a deceased owner of property is no longer around to execute deeds, only a court can effectuate the transfer of real property after the owner dies, and probate is the legal process by which this would occur. Many people have the misconception that having a will alone avoids the probate process. A will merely informs the world where you want your property to go, but probate is still needed to carry out the wishes expressed in the will (since even with a will, property stays in the name of decedent). Only a trust can avoid probate because once you have a trust, all of your assets are then transferred to the trust during your lifetime thereby avoiding the need for a court to do so.

For some estates, probate might be a good alternative, but consider these five reasons why you would want to avoid having your estate pass through probate:

• Probate is a public proceeding. As with any court proceeding, the court hearings and documents in probate are completely open to the public. In fact, probate courts typically require filing an inventory and accounting of the entire estate with the court. Anyone can simply visit the probate court and view or copy probate records, and some courts even make this information available online. If you have any interest in keeping your finances, property or family members’ secret upon your death, you want to avoid the probate process.

• The personal representative has to formally notify all your creditors of your death. One of the primary purposes of probate is to afford creditors the opportunity to have their debts with the decedent settled through the probate process. In fact, one of the first steps in the probate process is to specifically notify all known or reasonably ascertainable creditors that decedent has died, and therefore, if they want anything, they need to act now. Once a creditor has been notified, they merely need to file a claim with the probate court within the time allowed and will be entitled to payment from the probate estate (assuming it is not contested and there are assets are available to pay).

• Probate is a court supervised process. In many cases in probate, court approval is required at every step in the process, from appointing the initial personal representative for the estate, proving the will (if any), confirming dispositions of property, approving the inventory and accounting of the estate, settling disputes between creditors or beneficiaries of the estate, and final distributions of the estate. The process is fraught with rules and procedures that must be followed in order to obtain court approval. For example, selling real estate through the probate process may entail securing formal appraisals, offering the property for sale through a court bidding process, and ultimately obtaining court approval for the final sale. By contrast, since a trust is usually administered without any involvement of a court, the makers of the trust can be very flexible in how their property will be distributed without the need for a lot of formalities that a court would require.

• Probate involves time and delay in administering and distributing the estate. Given all the court procedures and requirements of administering a probate estate, even the most simple and uncontested probate proceedings can take many months to a year. If there are claims, disputes, or other complications in the proceedings, the process can take much longer. As courts continue to report reduced funding and large caseloads, increasing delays will likely continue to be part of the probate process.

• Probates usually involve significant attorney’s fees. Although parties certainly have the option to represent themselves in probate, due to all the procedural requirements in probate, which is usually quite different from the procedures in a typical lawsuit, attorneys are usually recommended in all but the most simple of probate estates. Attorney’s fees are usually paid from the estate based on a percentage of the value of the estate. If there are complications in the estate administration that requires extraordinary services, the fees would be even more.