Probate

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Probate is the legal process of transferring a person’s property to beneficiaries or heirs after death. The customs and laws concerning probate have changed significantly over time, but the intention remains the same: to identify, sort out, and distribute a deceased person’s property. To explore this concept, consider the following probate definition.

Definition of Probate

Noun

  1. The official proving of a will to be valid in a probate court.

Origin

1400-1450        Late Middle English probat

What is Probate

Probate is a legal process that takes place after an individual dies, whether or not he leaves a will. The probate court proceedings involve determining whether or not the decedent’s will, if there is one, is valid, and identifying and inventorying his assets. In the event a will is deemed valid, and to cover all of the decedent’s assets, the judge is likely to order the named executor to proceed in settling the estate, paying outstanding debts from the assets, then distributing the remaining assets to the specified beneficiaries. In the event the individual passes away “intestate,” or without leaving a will, the court will appoint an executor, and the assets will be distributed according to state probate laws.

Probate Law

All 50 states have laws governing estate planning and probate. While probate law varies, it covers matters such as proving the legal validity of a will, the creation of a trust, approval or appointment of legal guardians or conservators, and the overall probate process. Not every jurisdiction uses the term probate law, as some refer to these matters as “estate administration” or “probate codes.”

Probate Court

A probate court only deals with proceedings related to the administration of estates, guardianship of individuals unable to care for their own affairs, and adoptions. Responsibilities of the probate court in each category are quite specific.

Estates

An individual’s estate includes all of his real and personal property, as well as his financial assets, and is subject to any debts or financial obligations left when he dies. Such estate management tools as wills and trusts are intended to allow an individual to make plans for his estate in the event of his death. Probate court is tasked with ensuring all aspects of estate management, meet the requirements set by the probate laws of the state in which the individual lives.

This includes ensuring that requirements of age and freedom from coercion are met, and that the form, language, and execution of such legal documents are valid. Upon the death of an individual, the probate court is responsible for determining whether he has left a will, if that will is valid, and ensuring the assets are distributed according to the law.

Guardianship and Conservatorship

The legal terms guardianship and conservatorship both refer to the appointment by a judge of an individual to manage or oversee the affairs of another person and/or his assets. An individuals may specify, in his will, a guardian to care for his minor children in the event of their death. Similarly, an individual may specify another person to be his guardian in the event he is incapacitated by some illness or injury.

Most people do not anticipate such an event, and so do not make preparations for how his assets and family will be cared for. When this occurs, the probate court can appoint a legal guardian or conservator to handle the affairs of an incapacitated adult.

Adoptions

The process of adoption is the legal procedure by which children are placed in the permanent care of an individual or couple other than their biological parents. It is the goal of the probate court to ensure these children are placed with families that are willing and able to properly care for them. The probate judge reviews reports by child services workers, hears testimony when necessary, and reviews other facts and evidence to determine whether the prospective parents are reliable, responsible, and otherwise suitable to provide a health environment for the child. Information reviewed by the probate court in an adoption include background checks, mental competence reviews, financial status, and personal recommendations.

Probate Attorney

Probate law is complex, requiring experience and expertise in the field to navigate the probate waters. While it is not required to be represented by a probate attorney during probate proceedings, many people find it helpful. Individuals facing the possibility of having an individual appointed as a guardian or conservator have the right to representation by an attorney, some states allow the judge to appoint an attorney, even if the individual cannot afford one, or to appoint a guardian ad litem to represent the individual’s interests. Other situations in which a probate attorney may be necessary include probate of very large estates, unusual assets, or disagreement between heirs and family members.

Probate Process

The probate process differs slightly, depending on the circumstances in which the decedent left his estate. If he left a will, the named executor must enter the will into probate to be validated by the judge. If there are no problems with this, the executor will then be allowed to distribute the assets according to the instructions in the will. If, however, the individual died without a will, a family member, close friend, or other individual must request that the court appoint an executor over the decedent’s estate. This appointed executor must then investigate the decedent’s assets, determining what property the decedent owned, what financial assets and insurance policies he had, and whether there are outstanding debts that must be satisfied.

This list of assets is then presented to the probate judge with a plan for distribution. The judge then approves or makes changes to the distribution plan. This process have four distinct steps, including:

  1. Appointment of Executor or Administrator – a notice of probate hearing must be published in local newspapers to notify potential heirs and creditors that the estate will be administered. Any individual who would like to be appointed as executor or administrator of the will can appear at the hearing.
  2. Inventory of the Estate – the appointed executor creates a full inventory of the assets and debts of the estate, as well as known heirs.
  3. Payment of Debts – the executor pays all debts, taxes, and other expenses of the estate from the assets, and according to the court’s order.
  4. Final Distribution of Assets – remaining assets are distributed according to the decedent’s instruction in the will, or according to state laws if no will exists.

Probate Sale

A probate sale is a complicated process in which a decedent’s real property is sold, so the profits can be divided to pay debts or to be distributed between heirs. This is most common when an individual dies intestate, leaving the probate court to determine how to divide his assets. The laws regarding probate sales vary by state, but every jurisdiction is concerned with ensuring such a property is marketed properly, and sold at the best possible price. To that end, there are certain specific procedures that must be followed in a probate sale.

When a real estate agent is hired to list a property in probate, he lists it just as he would any other property. When a potential buyer makes an offer on the property, it must be accompanied by a good-faith deposit, usually 10 percent of the purchase price. The estate’s administrator then accepts or rejects the offer, or makes a counter offer. Once the estate administrator accepts an offer on a probate sale, the court must make the final approval. For this reason, probate sales often take longer to complete than traditional real property sales.

For example:

Diego passes away without leaving a will. While he owned his home, he also owed $27,000 on his mortgage, and had tax debts in the amount of $3,180. With no cash or other liquid assets to pay Diego’s debts, the probate judge orders his son Juan, named administrator of Diego’s estate, to sell the home.

Juan hires a real estate agent to list the property for market price of $147,000. A young couple quickly make an offer of $140,000, accompanied by a deposit check in the amount of $14,000. Because the home needs some work, Juan accepts the couple’s offer, submitting it to the court for the judge’s approval. While this process takes a bit longer than a traditional real estate sale, it provides Juan with the money to pay off his father’s mortgage and tax debt, leaving a profit of $109,820 to be distributed to Juan’s heirs.

Probate and Debts

When an estate goes into probate, there is a risk that there will not be enough money, even after property is sold, to cover debts left by the decedent. In this case, state probate laws specify the order in which debts are to be paid. For instance, federal, state, and local tax debts will be satisfied before personal loan debts.

Living Trusts and Probate

A living trust is an estate planning tool used by some individuals to avoid probate proceedings after death. A living trust is a trust into which ownership of the creator’s (“Trustor’s”) assets are transferred while he is still living. The Trustor of a living will may nominate another individual (called a “Trustee) to manage the assets in the trust from the time of creation, or may choose to act as Trustee himself, naming a Trustee to take over the duties upon the Trustor’s death. The living trust specifies how the individual’s assets are to be distributed after his death and, unlike a will, is not subject to the probate process.

A living trust may be revocable or irrevocable, each having different tax consequences for the Trustor and the beneficiaries. A revocable living trust can be altered, amended, or even cancelled (revoked) whenever the Trustor desires. An irrevocable living trust is different in that certain of the Trustor’s assets are transferred permanently into the ownership and control of the trust. This effectively removes the Trustee’s assets from his estate, alleviating his income tax responsibilities on those assets. Certain specific terms of different types of trust also relieve the individual’s heirs from the burden of inheritance tax.

What is an Estate

While the term estate may conjure images of a house or large property, it actually refers to all of the assets owned by any individual. In addition to real property, an individual’s estate may contain bank accounts, valuable personal property or collections, stocks, bonds, brokerage accounts, and business interests. All of these assets are settled as the decedent’s estate during the probate process.

Related Legal Terms and Issues

  • Asset – Anything owned or controlled by a person or company that is expected to have value.
  • Beneficiary – A person named in a will or trust as the intended recipient of assets or property.
  • Contract– An agreement between two or more parties in which a promise is made to do or provide something in return for a valuable benefit.
  • Creditor – A person or entity to whom money is owed by another person or entity.
  • Decedent – A person who has died.
  • Executor – A person appointed to act on the behalf of a deceased person.
  • Grantor – A person who creates a will, trust, or who transfers interest in real property to another.
  • Grantee – A person who receives an interest in real property according to a deed.
  • Jurisdiction – The legal authority to hear legal cases and make judgments; the geographical region of authority to enforce justice.
  • Probate Court – The division of the judicial system that deals with matters relating to wills, trusts, estates, guardianships, and conservatorships.“
  • Real Property – Land and property attached or fixed directly to the land, including buildings and structures.
  • Trustee – A person given control of property according to a trust.