Imagine yourself the ruler of an island. When a citizen passes, would you want a system in place to validate Last Wills, ensuring debts are repaid and assets are distributed to the right people?
Above is a simple probate analogy. It is not a tax, it is a process to ensure that repayment of debts and distribution of assets are handled in a civilized way.
Probate costs
The probate process and fees vary depending on the size and complexity of the estate.
Attorney fees can add to the cost of probate. Some estates are small enough that attorneys aren't used, but it's not uncommon for executors to be overwhlemed and hire an attorney.
Debts & creditors
Debts are typically not passed on to children or beneficiaries. Creditors must be repaid before distribution of the estate. Probate makes the repayment process easier by offering a limited time for creditors to make a claim, an advantage over a living trust.
Common probate assets
Real estate is the most common probate asset. If you have property in multiple states, you will likely have probate in those states.
Bank accounts and investments without POD (payable upon death) designations or beneficiaries are subject to probate.
Safety deposit boxes are subject to probate.
Personal property, like art, automobiles collectible, electronics, furniture, jewelry, etc., may be subject to probate.
Some assets avoid probate
Not all assets go through probate. Assets with designated beneficiaries avoid probate, such as
IRAs
401(k)s
Life insurance
Annuities, as long as the beneficiaries listed are still living.
Bank accounts with a named POD (payable upon death) beneficiary avoid probate.
Real estate using a beneficiary deed avoids probate. A drawback is potentially having to redo the deed if a beneficiary predeceases the owner of the property. If you outlive all the beneficiaries on the deed and forget to update the deed with new beneficiaries, the property will likely go through probate.
Assets in a Living Trust avoid probate. Typical assets placed in a Living Trust include real estate, bank accounts, non-qualified taxable investments and non-titled assets such as artwork, furniture, jewelry, electronics, collectibles, etc. Learn more about Living Trusts or how to transfer assets to a Living Trust.
Related research terms:
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