Did you know that estate planning can free up property and wealth without subjecting it to unnecessary procedures? Typically, when a person dies, it does not automatically mean that their estate will be subject to probate.
It is believed that around 60 to 70% of estates undergo probate. The process is often warranted when there is ownership of individual assets and designated beneficiaries are non-existent.
Meanwhile, 30% to 40% of estates do not enter probate. These estates use living trusts, joint tenancy, or beneficiaries to bypass the probate process. Estates that go into probate are mostly those valued at less than one million dollars.
According to Torrance estate planning attorney Andrew M. Meinzer, to protect your legacy and distribute your assets according to your wishes, you must have a comprehensive estate plan, which often includes a trust. Estate planning becomes important if you have spent a lifetime accumulating assets that you intend to pass on to your loved ones.
Whether you need probate depends on the types of assets you have and how you titled them. You should also take the applicable state law into account. The probate laws of a certain state dictate which items must pass through probate, which assets completely bypass it, and what limits or thresholds can allow more streamlined methods.
Let’s examine how the probate process works and how to identify which assets should undergo it.
What Probate Is and Why It Matters
Probate is the court-supervised stage where, if a will shows up, it is checked over and the decedent’s leftover obligations and taxes are dealt with. The remaining property gets passed to the beneficiaries.
The executor is a typical feature of most wills. If no will is present, then the court will assign an administrator to the estate. The appointed executor or administrator oversees the probate with the guidance of the probate court.
The probate process is public. Once it’s filed, the will and the breakdown of assets end up in the public record. The length of the process depends on the state and how complex the estate is. A probate can run anywhere from a few months to more than two years.
For beneficiaries, the practical outcome feels very real. During the proceeding, the court holds up the assets that must go through probate. These assets can’t be distributed until the court closes the estate.
The estate funds pay attorney fees, court paperwork costs, and executor compensation before any distribution happens, so beneficiaries receive less. In states where there is an intricate or slow probate system, the expenses and the waiting periods become even more noticeable.
Do all estates have to go through probate in Connecticut or other states? Well, some estates will not need to go through probate at all. Many estates go through probate, but a significant number either avoid it entirely or only require a simplified version, depending on how the estate was structured before death.
Assets That Bypass Probate Automatically
Some assets pass outside probate when they are transferred by law or contract rather than by will. Assets such as IRAs, 401Ks, and other types of pensions will be passed to named beneficiaries directly. Life insurance functions the same way in that the beneficiaries get the funds without the case being heard in probate court.
Payable-on-death or transfer-on-death accounts are also assets passed directly to the named beneficiary. If property is owned jointly as a tenant in joint tenancy or as a tenant by the entirety, the asset will automatically be transferred to the surviving co-owner simply by presenting the death certificate. Assets under a living trust also pass directly outside the probate process.
Which Assets Do Require Probate
Probate assets include those held exclusively in the name of the deceased or those without any beneficiaries or trusts. Some examples include real estate properties, bank accounts without a pay-on-death designation, brokerage accounts without a transfer-on-death designation, motor vehicles, and other personal property.
When the “estate” is the designated beneficiary of an asset, it becomes a probate asset. People often make this mistake when creating their estate plan.
For instance, if life insurance benefits are paid to the estate, they will not go to an individual since they become categorized as a probate asset.
In the absence of a will, probate occurs according to intestate laws of the state.
Small Estate Alternatives to Full Probate
Every state provides for a small estate procedure where the assets can be transferred without probate but with varying thresholds. These include anywhere from $15,000 in certain states to $200,000 or more in other states.
Certain states may even allow certain accommodations for specific types of assets. For instance, in California, there is a provision for transferring certain types of primary residences up to $750,000 through a simplified process rather than probate.
The procedure is an easy process involving waiting periods, affidavits, and the death certificate, among other requirements, making the overall process easier and less expensive than probate. If the estate falls outside the threshold by just a bit, then probate will still be required.
Why Probate Is Not Always Avoidable Through Planning
Even when an estate is well-planned, a few assets can still end up in probate. A revocable living trust can prevent probate only for those items that the owner actually transferred into the trust while they were alive.
Assets that come in after the trust was set up and are never re-titled into the trust, properties that were overlooked during the funding, and even assets received as inheritance not long before death are frequent reasons unfunded probate assets show up in estates that were intended to bypass probate completely. To address these issues, drafting a pour-over should be done.
The pour-over will say that any assets not already held in the trust at death will go into the trust after death. Assets named in this document will still pass through probate, but then they are handled under the trust’s conditions. It is more like a safety net than a full remedy to the situation.
The American Bar Association offers resources about estate planning approaches that line up wills, trusts, and beneficiary designations in a way that can reduce probate exposure.
The Answer Is Always: It Depends on the Assets
If an estate goes into probate, it is not about whether the person had a will or how large the estate was. The key factors that determine whether an asset will go through probate are its ownership or title and the thresholds established by state laws.
For example, someone could have a 401(k) with named beneficiaries and a bank account with a payable-on-death setup. The individual could still end up with a very substantial estate that never needs probate court.
In another scenario, someone who owned only a modest home in their name will almost certainly have an estate that needs court involvement.
For those dealing with estate matters, the key takeaway is understanding how each asset is titled and why that matters.
The will really only controls probate assets, and often, these assets are fewer than most people assume.
