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Understanding Estate Administration and the Probate Process

You may have heard people say that it's wise to avoid probate. But is it true? And do you understand why?

Probate is the court-supervised process for distributing the assets in your estate. It involves the proposed executor in the will petitioning the court to accept the will as a valid testamentary instrument. The goal is to protect the rights of your heirs, but there are drawbacks. If your estate winds up in a probate proceeding, the details generally become part of the public record. Every asset and debt of your estate, as well as the plan for distributing it to your heirs, could be open to scrutiny.

Probate and Non-Probate Assets

In general terms, the assets in your estate are divided into two types:

1. Probate assets that pass through your estate if they do have not designated beneficiaries.

2. Non-probate assets that are exempt from the process.

Assets that are not subject to probate include:

  • Joint tenancies (including right of survivorship);
  • Bank and brokerage accounts and securities which have a payable on death (POD) or transfer on death (TOD) designation;
  • Assets in Trust (including in a living trust);
  • Life insurance benefits with a designated beneficiary; and
  • IRAs and Qualified Retirement Plans in which a beneficiary is named.
It's important to note that assets controlled by the decedent at death, even if not subject to probate, are still subject to the same estate taxes as probate assets.

The Time-Consuming Tasks of Probate

If you have not left a will or it's declared invalid, the court will appoint a personal representative or administrator of the estate. This is usually a family member. The court may order a search of your premises and safety deposit boxes to determine whether you had a will that no one knew about.

The personal representative, administrator, or named executor has to be willing to take on the job. With the help of an attorney, the individual generally must complete the following tasks:

1. Take inventory. The personal representative or administrator sets up an estate accounting system and locates and collects all assets. The individual must compile a list of all probate and non-probate assets — and manage the probate assets until they are distributed. (See right-hand box for a list of non-probate assets.) The inventory describes and provides the date of death value of each asset such as bank accounts and investment accounts. The executor or personal representative must keep records of the estate's financial transactions and provide an accounting to the heirs.

2. Evaluate the estate to minimize costs. The personal representative and legal counsel should examine the assets of the estate to determine the best way to manage them.

3. Decide on proper proceedings. If assets are scattered across the country or internationally, the personal representative or administrator must determine the nature of the proceedings required in each jurisdiction.

4. Publish notices to creditors. Notices generally are placed in newspapers and copies sent to creditors to let them know about deadlines.

5. Pay debts. The personal representative pays creditors or challenges them.

6. Pay taxes. The personal representative must file proper forms and file federal and state income tax returns. Gift tax, estate tax and fiduciary returns may also be necessary. Consult with a tax advisor for guidance regarding tax issues.

7. Disburse allowances. The state may require that surviving spouses and minor children be given an allowance to provide support while the estate is in probate.

8. Distribute assets. The court is asked for permission to distribute the remaining estate assets. An accounting may be filed with additional information, such as the expenses incurred in handling the probate process. Anyone who has an interest in the estate may object to that accounting.

9. Close the estate. Depending on the specifics of the probate process, the estate may be closed informally with a simple notice to the court, beneficiaries and certain creditors, or it may be closed by the court after approving the asset distribution. If the estate is subject to objections to the account of the personal representative, or if there are any other disputes, the personal representative should obtain releases from the heirs or beneficiaries. This provides protection from future liability.

There are many tasks necessary for the personal representative or administrator of an estate. Consult with your attorney and start planning now. If avoiding probate is your goal, your attorney can help set up a plan.

If you are the executor or personal representative of an estate, it may be best to consult with legal counsel prior to beginning the administrative or probate process. There may be techniques that can be employed after death, such as renunciation and disclaimers.