What Every Family Needs to Know About Probate
What does every family need to know about Probate? Attorney Sarah Kons appeared on WHBY’s Fresh Take with Josh Dukelow to discuss.
Josh: Sarah, welcome back.
Sarah: Hey, Josh.
Josh: It's great to have with us again. So Probate. I've heard this word. I'm pretty sure I have no idea what it means. Why don't we start there? What are we talking about when we talk about Probate?
Sarah: In kind of the simplest terms, Probate is just the court process that is used to take assets that you may have had in your name at the time that you passed away and get them to the people that you wanted them to go to along with paying bills and creditor claims and things like that along the way.
Josh: So Probate sounds like this is something every estate has to go through at some point? I mean, this is a process of distributing the things that are supposed to go to people. Eventually, every estate is going to have to go through that, right?
Sarah: Every estate is going to have to go through a process. Whether or not it's Probate is part of the decision-making that you go through when it comes to your Estate Plan. Probably most situations that I see where plans haven't been put in place, you end up using a couple of different processes including Probate to pass your property. And you really want to try to just use one if it's possible.
Josh: For simplicity's sake, I'd imagine?
Josh: You want to have one path forward once all of this begins [...] a clear, established path where all the questions are answered ahead of time. That's what an Estate Plan is for.
Sarah: Right. Exactly.
Josh: So if you have a Will in place, does that mean you don't have to go through a Probate or is that preferred to going through Probate? How does a Will connect to this?
Sarah: It's probably one of the most common misconceptions that I hear. A lot of people think that if you have a Will, it means that you're going to avoid Probate. And the simplest definition of a Will is just that it's a set of instructions intended for the Probate court.
Josh: Oh, OK.
Sarah: So if you have a Will, it means that you intend for your estate to go through Probate.
Josh: So then, what kind of Estate Plan or what steps would we take, or is it possible to avoid Probate? Are we trying to avoid Probate? I'm not even sure what we're looking for here.
Sarah: A lot of people want to. Probate isn't a bad process. It gets, unfortunately, a really bad reputation.
Josh: Yeah. Because I know phrases like, "It's stuck in Probate." And that sounds like something I want to avoid.
Sarah: I think that's exactly where a lot of this comes from. Probate can be very useful in a lot of situations. It just depends on whether or not you or your estate is going to get value out of going through the process. Probate takes an average of a year, regardless of what kind of property you have going through it. Sometimes, it can take longer. It costs money to go through Probate, so a lot of people don't like all the hoops that you have to jump through. It's a one-size-fits-all process that applies to everything that is subject to Probate.
And if some of the hoops or the steps that don't apply to you, it can be frustrating to have to deal with them. It's a pretty big learning curve for people at the time that they're trying to help their loved one's estate get through all of the steps associated with it. And I think that's also where a lot of the frustration comes from.
So people tend to do different things to try to avoid Probate with their property. And that's probably one of the biggest problems we see is kind of a disjointed Estate Plan where you have, "Well, I don't want my stuff to go through Probate, so I'm just going to put, 'payable on death,' 'transfer on death,' or beneficiary designations on my accounts, because that avoids Probate."
So that's a great plan, right? Well beneficiary designations can be very useful tools in implementing your plan. But they are not a plan by themselves.
Josh: I remember this from our experience, where you write the plan. You had a phrase for it. Then you had to document the plan or [...]
Sarah: You have to coordinate your assets or align your assets or funding is also [...]
Josh: And fund the plan. The plan says what you want it to do. Now you have to get all the assets go in the right place to actually do that.
Sarah: Exactly. And a lot of people with Wills and of the doing the, "I have a Will, but I don't want to go through Probate, so I'm going to go beneficiary designate everything."
Probably the most frustrating estate you can have to deal with is when all the money is designated so you have all these designations on all of your accounts, but then the house goes through Probate. So then what are you using to maintain it? How are you paying property taxes? How are you dealing with any of the bills that are coming through?
Josh: Ah! Because while this Probate process is carrying forth, you still own that asset. You're still responsible for the maintenance, upkeep, and taxes.
Sarah: Or at least your estate is.
Josh: Right, right. OK. Because at this point, you yourself are probably gone. So who's managing this as we're going through this? Who is carrying my estate through this process while I'm gone?
Sarah: That's a very good question. You name a person in your Will. The old-fashioned term for it is an executor if you're a man or an executrix if you're a woman.
Josh: I love the Latin.
Sarah: Exactly. There's got to be a little bit of it in there. We've now moved to the gender-neutral term of personal representative. You name your personal representative in your Will, but that doesn't give anybody the authority to actually do anything. You have to be approved by the court, and a lot of people take Wills into the bank and say, "I need to get access to this account. I'm the personal representative."
The bank doesn't want to see the Will. They don't care about the Will. What they want to see is authorization from the court that you have been approved as the personal representative, which is a completely different form.
So the person that is named then has to go through the approval process. There's usually a time period that you have to wait [...] 30 days [...] in order to let everybody object to the naming of the personal representative if they want to. There have to be notifications done to all the people named in your plan and any person that would be a natural heir if your plan were to fail so people that you may have disinherited [...] everybody has to be notified and given a chance to object.
They can waive their rights to this, but you send out this form that says, "You waive all notification and all the rights for this process. Just sign here." Nobody signs these and returns them.
Josh: I was going to say. Yeah. Very few people are going to waive all rights even very specific context.
Sarah: Exactly. So then you wait your 30 days, and hopefully, at that point, the personal representative gets approved. But what do you do until then? Nobody has access to the money at that point. So then you beneficiary designate. "Oh, I'll just do one account so this person has money." Well that's also the account that isn't subject to Probate.
I've had a number of families come in where somebody has designated one account for a funeral, and they designate it to a person. So you use it to pay the funeral. But then the person takes the money and submits a bill for the funeral to the Probate system. So basically, they just get to keep the money in the account, because they have no obligation to pay your bills.
Josh: Even though that's the instruction.
Josh: So this is interesting, because in the years that we've spent talking about Estate Planning, getting ready for what we all know is coming in the future, the idea is if you've got a good, consistent, complete plan, you're set. But it sounds like what that means is you're set for this inevitable Probate process we're all going to have to go through anyway.
Sarah: If you're intending to use Probate and you've decided that you're getting value by going through this process, it can be useful to you if you have a deficit estate. So you have more creditors than you have money. The court can deal with them, and your family doesn't have to deal with them, which is very useful. There's value in that for them.
If you have minor children, you have to go through Probate, because that's where guardianship happens. If you think that your family's going to fight and you want a neutral person [...] a referee and the judge to help monitor that. These are all things that are useful and you get from going through the Probate process. But you can't have a Will direct your assets but then send all of your assets in a completely different direction. That's where we see a lot of the problems come from Probate.
Josh: So again, that's where talking with you and your colleagues at Hooper Law Office to help understand what these documents do, what they don't do, and where it's taking you. You can think of someone who's completed a plan. They say, "Great! I'm all good now." But there are steps that continue aside from things like maintenance and upkeep and review. Once that plan is in effect, these are the kinds of things that become important is, "Okay, did you align them with your beneficiary designations? Have you designated certain assets in certain places? What are those instructions for the court?" That's when all this starts to matter.
Sarah: Do you actually understand how this works and how your plan is going to work? Do you understand what's going to happen with these assets, and is this what you intend?
When I review plans, the first thing I do is say, "OK. This is what you have. This is how it's going to work. Is this what you want?"
And I think probably about 99% of the time, people say, "No, that's not at all what I thought I was going to do."
Josh: Right, right. And so this again is where we're working with somebody who knows the system, has been through this before is so valuable. Knowing what you don't know is one of the biggest parts.
Sarah: Making informed decisions.
Josh: Yes. Absolutely. So OK. A couple of other things that I want to touch on here in the time that we have left. You talked about objections. Is there a way to avoid that? I mean, if you lay it out pretty clearly in your plan who you want to get what, people can still object and then fight over it?
Sarah: You can sue me for having a striped dress on today, if you want to. You can't prevent people from doing that. But if you make your plan easy and clear about what you want so people aren't arguing about what your intentions were [...] you have to remember that your loved ones are grieving at this time, and people don't always act the way they normally would when they're going through the grieving process. And then you put money on top of it and in-laws and everything else, and any sort of inconsistency or gray area that you have in your plan can cause a lot of problems.
So you want to make sure that you're clear, and that will help with your family members getting through that process a bit more easily. But objections can happen.
Josh: Yeah. In choosing these personal representatives, would it be advisable to maybe not choose a family member as a personal representative to avoid maybe some of those what might become conflicts of interest?
Sarah: That's exactly why we talk through the personalities of all the people that you want to have involved in your process. For some people, they don't want their loved ones to have to do any of this. Or they don't have somebody that's very well suited for this.
I have families that I've done planning for where they have a really smart person maybe that they want to name, but they struggle to actually get to the bank or get something signed. And despite how intelligent somebody is, if they struggle to get things done, it might not be the best person for that kind of job.
Josh: Sure. Yeah, that makes all the sense in the world. Does that personal representative get paid for doing all of this?
Sarah: They can. Yes.
Josh: And that would be something you would prescribe in your plan?
Sarah: It's something that you can account for in your planning. The Probate process, itself, also allows for it. With a Trust, you can allow Trustees, which is kind of the mirror role in a Trust Administration to a personal representative in a Will. You can allow for payment by the person.
It's considered taxable income. You're doing a job and getting paid for it, so you have to remember that. Often beneficiaries, who are also these roles, don't choose to pay themselves for that reason.
Josh: Sure. Yeah. Because they'd have to pay taxes on it. So I want to go back to the highest level on this. It sounds like Probate is unavoidable. Is that accurate? Can it be avoided in some way?
Sarah: Yes, it can.
Josh: And do we want to try to avoid it?
Sarah: It depends.
Josh: Ah. OK. And it depends on what assets you have. Give me some of those considerations. If somebody was coming to you, how would you help them understand whether or not they're trying to avoid Probate?
Sarah: Whether or not they're going value out of process. So the minor children, deficit estates, problems in your family. If you own property in multiple states, you'll have at least some type of Probate in every state where you own property. So that might be a reason to not use Probate.
So it depends on what your dynamic is and what you're trying to do. But you only want to try to use one of these processes rather than having a little bit in every type of process that we have.
Josh: So this is it. Coherent planning simplifies what is the eventual process of reconciling all of these plans you have written up.
Sarah: Right. You don't want to end up at the Estate Planning buffet where you've got a little bit of Probate, a little bit of Trust, and maybe some beneficiary designations thrown in.
Josh: Yeah. Because that just gets complicated. And as you said, the people who are helping to execute this process, who are fulfilling your last wishes are grieving. They're going through a really emotional time. And even if that extends for months, that grief stays with them and that colors this process, I'll say. And so trying to simplify this as much as possible is really a responsible thing to do for your loved ones.
Sarah: Oh, absolutely. Your loved ones can accept decisions from you as the person that passed. They have a very difficult time, especially children, accepting decisions from each other.
Josh: And anybody who's been through this at any level, at any age, at any time knows how that can happen. Well that's why we talk to Hooper Law Office.
Sarah: Thank you, Josh.