Probate Demystified: A Strategic Approach to Estate Planning
When considering estate planning, it’s easy to dismiss probate. Many books, articles, and websites are focused on strategies to avoid probate — we often forget why probate exists in the first place. But probate is not some end-of-life boogeyman. When used intentionally, probate is an effective and conclusive way to distribute one’s assets. So, what is probate? How does it work? Why do people believe they need to avoid probate? And why should you consider some potential benefits of probate?
What is Probate?
Probate is a legal process whereby a court oversees the distribution of your assets after your death. Probate is usually necessary to clear title to land, distribute stocks and bonds, and resolve bank accounts held only in your name. But not all assets pass through probate. Property held in a trust, retirement benefits, life insurance policies, joint assets, and any other assets which have a post-death designation (“POD” or “FBO”) automatically pass to your intended beneficiaries outside of probate. These “non-probate assets” avoid some of the costs associated with probate and are generally distributed faster and privately.
Nevertheless, probate also has its advantages. Probate is useful to collect debts owed to you after your death, settle any claims creditors have against your estate, and resolve any disputes. In sum, probate offers finality. Your estate will be settled, and your family will not have to worry about any unpaid debts, taxes, or legal claims down the road.
How does Probate Work
Probate follows two sets of rules: (1) where you did not leave a will; and (2) where you did leave a will. Oregon also offers a third type of probate for handling small estates.
1. You did not leave a will
If you did not create a will before your death, your assets will pass to your heirs through a process called intestacy. In intestacy, Oregon law controls who receives your property and how much of it, regardless of your wishes. The idea is to mimic what most people would put into their wills, but the issue is that neither you nor your relatives can choose who receives what from your estate. Intestacy is also lengthier and more expensive than other forms of probate since the court must personally divide and distribute the estate. One of the main reasons to begin estate planning is to make sure you avoid intestacy.
2. You did leave a will
If you had a will, the will is “proved” (authenticated) and delivered to the court. The court then selects a personal representative. A personal representative, or executor, is the individual who will handle your affairs. A will generally names a personal representative who, if willing to serve and otherwise qualified, will be approved by the court. If the will does not name a personal representative, the court will select one, usually your spouse, your adult child, or another close relative. If none of those people are available or willing, the court may choose a bank, trust company, or a lawyer.
Once the personal representative is appointed, the heirs are notified of the probate proceeding. The personal representative will then publish notice to creditors in the local newspaper. This public notice tells the creditors that they have four months to bring any claims against the estate. The personal representative also gives written notice to all known creditors. These creditors have 45 days to bring their claims.
The personal representative will then identify and value your assets to prepare an inventory for the court. Debts and taxes are paid from the estate assets. Creditors, including taxes, must be repaid from the estate before the remaining assets can be distributed to the heirs. The personal representative is responsible for paying these debts.
The personal representative then prepares and submits an account to your heirs and the court. The account shows all money paid out and collected by the estate. It also contains a narrative explaining the important actions taken in connection with the probate of the estate. After court approval of the account and payment of all unpaid probate expenses, specific bequests are made and your assets are distributed to your heirs.
3. Small Estate Probate
Oregon has a special procedure called the small estate proceeding. It applies if the total fair market value of the estate is no more than $275,000. In a small estate proceeding, the will-appointed personal representative or any person named in the will may file a document called an “Affidavit of Claiming Successor.” The affidavit must include a long list of information and some attachments including: a certified copy of death certificate, a description and estimated value of all property of the estate (including a legal description), and a list of the names and addresses of known creditors. A small estate proceeding can begin 30 days after your passing and, once approved by the court, the estate may be distributed immediately.
Now that we know what probate is and how it works, we ask ourselves, “why do people want to avoid probate?”
Why do People want to Avoid Probate?
Articles generally cite three reasons why people want to avoid probate: to save time, to save money, and to avoid publicity. We examine each contention in turn:
Probate can be Time-Consuming
Probate takes a minimum of four months— the mandatory period to allow creditors to present themselves and make claims against the estate. Probate can last much longer if the estate includes property that takes a while to sell or if there are complicated tax matters. Most probates take six to nine months to complete during which time the assets are “frozen” meaning your heirs aren’t able to receive or use them.
Probate may be Expensive
Oregon grants personal representatives a fixed percentage of the value of the total estate (two percent for estates over $50,000). The court may approve extra costs if the estate is complicated. Other costs include court filing fees, legal notices, attorney’s fees, and any other necessary expenses. Generally, the cost of probate, including the cost of preparing a will, falls between $3,000 and $5,000— though small estates may cost as little as $2,000.
Probate is Public
Probate proceedings are public records, meaning that information about your assets and liabilities are accessible. It also gives relatives and friends a forum to bring suits to argue about the validity of your will, argue about whether they are entitled to certain property, and argue about your debts. All of these arguments — everything about your estate from the value of your jewelry to the age of your heirs — is public.
Despite probate’s perceived shortcomings, it nevertheless offers many advantages non-probate assets do not.
Why Should You Consider Probate?
Probate is the most conclusive way to distribute your assets. Its main benefits are protection and finality.
Probate is Protected
Probate court offers an opportunity to settle disagreements about the estate. This process can be contentious. But court supervision of these disagreements can be advantageous for serious problems such as elder abuse, undue influence, fraud, or dementia. Even less serious arguments may be better solved through probate. Estate issues are sensitive and can create lifelong rifts between loved ones, so it may be better to allow a neutral judge to make the final decision.
Besides dealing with family, probate may provide you with an opportunity to challenge the validity of a creditor’s claims in court. If you believe a creditor will wrongfully try to collect debts from your estate, probate affords your heirs the chance to prevent bogus claims you otherwise may have to accept at face value.
Finally, probate proceedings are insured in a way that non-probate assets just aren’t. Courts closely supervise personal representatives, making sure they do not abuse their position. Furthermore, probate assets can be insured by bond. Your heirs will be reimbursed should the personal representative violate the terms of the will. Court supervision, a forum to prevent bogus claims, and insurance are three reasons why probate is the most protected way to distribute assets.
Probate is Final
After probate, all of your assets will be distributed and no further claims may be brought against your estate. Creditors are obligated to bring their claims within four months; 45 days if they personally received notice from the personal representative. In comparison, creditors have six years to file a claim for unpaid debts against non-probate assets. A claim for unpaid taxes can be brought as late as 10 years after your passing. Probate gives your heirs certainty in the long run— certainty that creditors (and the government) will not be knocking on their doors.
Normally, all we hear is why we want to avoid probate. But probate is the most conclusive way to dispose of your assets. As the saying goes— an ounce of prevention is worth a pound of cure. Talking to an attorney now about whether probate is right for you will prevent headaches and heartbreak for your family down the road.