Wednesday, February 8, 2012

What is Probate

Probate -- a word that strikes fear in nearly everyone.  In reality, depending on where you live, probate may not be nearly as bad as you might imagine.  Your fears are often used to sell you cumbersome, overpriced trusts so that you will avoid probate.  Before turning over thousands of dollars, understand the basics so that you can make an informed decision.

Probate is the legal process by which assets of the decedent are transferred to new owners.  If the decedent had a will, the will tells the court what to do with the probate property.  If there was no will, then state statue controls the distribution of assets.  In Wisconsin those rules are set out in Chapter 852 of the Wisconsin Statutes.

Also, it is important to note that the probate process only casts a net over probate property.  That is defined as property that does not have a label on it stating where it should go upon the owner's death.  Common examples include tangible personal property (jewelry, clothes, furnishings, etc.), vehicles, bank accounts, and homes. Excluded from probate are assets that have a beneficiary form, such as those on life insurance and or retirement accounts.

At the time of a person's death, the personal representative nominated in a will is supposed to file the will with the court.  The court will issue a letter (domiciliary letter) stating that the personal representative is authorized to handle matters related to the decedent's estate.  That means they can close accounts, shut off cell phones, talk with accountants, sell property, etc.  During the initial phase of probate the personal representative is required to give notice to all known and unknown creditors of the decedent.  In Wisconsin those creditors have 90 days to file a claim against the estate.  Using an "estate of checking" account opened by the PR, final bills are paid, proceeds from assets being sold are deposited, and if there is a positive balance at the end, the remainder is given out according to the terms of the will or if no will, by statute.

Fees associated with probate vary greatly from state to state.  In Wisconsin the current fee is 0.2 percent.  That means $2 for every $1,000 (liquid and ill-liquid) are owed to the court at the time the inventory is filed. However, in some states, the fee can go as high as 10% or 15% of the probate value.

Probate also takes time, or at least more time that non-probate transfers.  The court is involved, creditors have to be notified.  Selling real estate and reaching resolution on final medical bills commonly slow down the process so that 18 months from start to finish is considered timely.

If you are considering taking measures to avoid probate in your state, I urge you to slow down, gather information, and make an informed decision.  What is a true cost of probate (the fee plus a few thousand for attorney fees) and compare it to the cost of a trust -- often the vehicle sold with the promise it will avoid the hassles of probate.  Beware, trusts avoid probate, but often create an entirely new set of expensive problems.

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