The Basics of Probate in estate planning

Probate serves several essential functions, including validation of the will, the settlement of the decedent’s debts and liabilities, and the eventual distribution of assets to the decedent’s beneficiaries. In this guide, we will discuss the parties involved in the probate process, what comprises a probate estate, the functions and duties of the probate court, and the significance of probate in estate planning. 

Key Parties 

To better understand the rest of this guide, it will be helpful to understand the parties involved in the probate process.

• The Decedent. A decedent is the person who died, and whose death is the subject of the probate proceedings. This is true regardless of whether they left or died intestate (i.e., without a will).
• The Executor: An executor is a person one appoints in their will to administer their estate upon their death. If a decedent dies intestate, the court will appoint an administrator to perform those duties. In some states, an executor may be an institution or corporation appointed to fulfill that role.
• Beneficiaries. Beneficiaries are those that are entitled to inherit property from the decedent. Beneficiaries generally inherit property under the will, but that is not always the case. As will be discussed in more detail below, assets and accounts may be passed to beneficiaries outside of the will. Also note that while family members are the most common beneficiaries, they can also be entities such as charities and educational institutions.
• Heirs. The terms heirs and beneficiaries are often used interchangeably, but technically beneficiaries are those that inherit under a will, while heirs inherit when the decedent passes intestate.
• The Probate Court. The probate court validates the will, oversees the probate process, and resolves certain disputes. If a decedent dies intestate, the probate court will ensure that the property gets distributed per state succession laws.

The role of probate courts 

While specifics vary based on the state, size of the estate, and certain other factors, as a general matter, the court’s duties will include: 

• Validating the will and resolving related disputes. This includes verifying that the will’s execution, as well as any amendments thereto, were properly witnessed and executed in accordance with state laws. It also resolves disputes relating to the will’s validity.
• Determining the order of priorities by which the decedent’s debts should be paid off.
• Supervising and approving (or disapproving) an executor’s or administrator’s activities in notifying and paying any beneficiaries, creditors, or other claimants, and then distributing the remainder to the beneficiaries in accordance with the will.
• If a person dies intestate, appoint an administrator and ensure that the property is distributed in accordance with the state’s succession laws. Succession laws basically dictate the default way a decedent’s estate should be distributed to family members based on degrees of relationship if they die without a will.

Types of Probate and alternative proceedings

Many states have some sort of expedited process for estates under a certain threshold, allowing them to avoid probate altogether. The criteria for qualifying are very state-specific, as are the alternative processes themselves, but generally involve simplified filing requirements and the assignment of a representative to ensure that all debts are paid off and assets distributed to the beneficiaries without court supervision or involvement. 

For estates that are not eligible for simplified proceedings, the probate may be informal, which is a faster process with minimal court involvement. Informal proceedings are typically used where there are no disputes between the beneficiaries. Formal proceedings, on the other hand, are closely supervised and handled by the court. They are used for complex estates, or when significant issues or disputes arise, such as someone contesting the will’s validity, or disagreements arise between the beneficiaries regarding the distribution of assets. 

What is a probate estate, and what does it include? 

Understanding what is or isn’t considered part of a probate estate is critical for making an effective estate plan, as it allows you to best allocate assets to your intended beneficiaries, minimize taxes and delays, and mitigate or prevent family disputes and legal conflicts.

To the extent they are solely owned by the deceased, the probate estate will include:

• Real estate, such as land, homes, and commercial properties. 
• Personal property such as vehicles, furniture, artwork, and jewelry. 
• Bank accounts, cash deposits, stocks, bonds, and other business ownership interests. 
• Intellectual property (IP), such as patents, copyrights, and trademarks

Note, however, that in community property states, most assets acquired during the marriage are considered jointly owned regardless of whose name the title is under, and therefore a portion of those assets may pass directly to the spouse outside of probate. 

Conversely, the following types of property bypass probate and are therefore not part of the probate estate. 

• Jointly held property with a right of survivorship. This is a type of ownership where two or more people own an asset together, and when one person dies, the surviving owner(s) automatically owns the asset. (However, in some states, some of this property may be used by the court to pay off the decedent’s debts if the other assets are insufficient to cover them).
• Certain retirement accounts, pensions, and life insurance policies with designated beneficiaries. 
• Most trust accounts. (although the specifics vary based on the state and the terms of the trust) 
• Payable-on-death (POD) and transfer-on-death (TOD) accounts. These accounts can be used to designate beneficiaries that will directly inherit the accounts upon the owner's death, thereby bypassing the probate process. 

Note that a probate estate also includes any of the decedent’s debts and outstanding income and property tax liabilities, as well as any estate taxes that may be owed. Once these are paid off, specific and general bequests are distributed, and finally the residuary estate is distributed to the beneficiaries in accordance with the will’s residuary estate clause, or per state succession laws if the will did not include such a clause.

Estate planning with probate considerations in mind 

Considering probate implications while planning your estate can offer numerous benefits. Some examples include:

• By being as specific and detailed as possible in your will regarding all your assets and how you want them distributed, you can avoid a lengthy and expensive probate process, as well as associated costs that can come out of your estate, which would then have less to pass on to your beneficiaries. 
• By using the proper balance of lifetime gifts such as trusts, POD accounts, and TOD accounts, you can ensure that the value of your estate falls under your state’s probate threshold and therefore qualify for the expedited alternative proceedings.
• By using irrevocable trusts, you can pass on assets outside of probate such that they will be shielded from your creditors’ claims. 
• You can mitigate taxes imposed on your estate and lifetime gifts. This is because there are limits on how much you can give to a given individual during your lifetime before they become subject to gift taxes. On the other hand, there are many estate tax and inheritance tax considerations as well.

As you can see, when it comes to probate considerations in estate planning, things can get very complicated very quickly. Having the assistance of a skilled attorney with extensive experience in practicing Trusts & Estates law can help you create an estate plan that offers the maximum benefits for your beneficiaries, minimizes potential disputes, and ensures that the process is as smooth and expeditious as possible.