Many people fear probate as much or more than death itself.
It reminds me of the quote by Steve Jobs,
No one wants to die. Even people who want to go to heaven don’t want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life’s change agent. It clears out the old to make way for the new.
Probate is the method by which a deceased person’s assets are distributed after paying creditors for the deceased person’s debts.
The US version of probate stems back to the Common Law Courts of England as well as the Ecclesiastical Courts and the Courts of Chancery. For non-lawyers and even for lawyers who don’t remember their law school texts those terms are confusing, but they relate to which courts distributed property. In the feudal times of King Henry VIII, Common Law Courts disposed of real property and Church or Ecclesiastical Courts disposed of personal items. Because it was viewed as a sign, most people had will in the Medieval Ages, at least they did in England. Enough of the history lesson.
US Courts have usually not had to deal with the complexity of which part of the will could dispose of what asset in which court. Where could the creditors go to compel an executor or personal representative to pay a just debt? Those were some of the confusing questions people encountered in feudal probate.
Nevada has four varieties of probate, with also other methods of distribution.
First, if an estate that is subject to probate does not exceed $100,000.00 for a spouse or $25,000.00 for a non-spouse heir, a simple letter conforming to statute will allow a bank to pay the funds to the beneficiary.
Second, if after debts are taken care of, an estate that is subject to probate does not exceed $100,000, the estate can be set aside to the surviving spouse or children through an abbreviated petition and one hearing.
Third, for estates subject to probate exceeding $100,000 but not exceeding $300,000.00, a summary method may be used, which lasts not less than five months, assuming there are no disputes or contests.
Fourth, for estates exceeding $300,000.00, there is a full administration, lasting between six to eight months.
As mentioned above, probate can be timely. Probate can also become very expensive. Typical costs of probate ranges from three to five percent (3% to 5%) of Gross Asset Value. Sometimes depending on circumstances, the costs can be less, and other times, if disputes are involved, the costs can be considerably more.
The probate process can significantly reduce the value of an estate, if disputes are involved. For instance: for an estate worth about $132,000 that was contested by a disgruntled heir (who actually had her own benefit reduced) the probate cost about $32,000; and a very large estate, where the mismanagement of affairs and attorneys’ fees whittled an estate worth $52 Million Dollars down to $1 Million Dollars.
Many people believe probate doesn’t affect them, because either they are going to die soon, or they don’t have much money. Years before the economic collapse of 2007-08, an old estate lawyer’s study revealed the average estate to be worth $325,000. So most people die with an estate, which would be subject to probate. Today, it may be different, but for those more likely to die, meaning those over the age of 65, the average American in this age bracket has at least $232,000 in assets. In other words, many people have estates subject to full probate.
Alternatives exist to probate. And surprisingly, there are times when probate may be advisable. For example, if somebody ill-advisedly, purchased real estate with a spouse under the title of joint tenancy with right of survivorship, that title can deny the surviving spouse the full step up in tax basis if there has been substantial appreciation.
Most people who have researched probate avoidance are familiar with revocable inter vivos or “living” trusts. These are instruments which if properly constructed and funded will avoid probate for a fraction of the probate costs. Other planning strategies can be employed to maximize gifting, while avoiding probate.