When a person dies, there has to be some way to transfer their assets to their heirs. There are multiple ways that this can be done. Sometimes, when property is owned jointly, it passes by operation of law. For example, consider a husband and wife that owned their house together, or their bank accounts. Upon the first of them to die, the asset automatically becomes the property of the other spouse. In this case, they would still need to clear title with the bank or with the local property records.
Other times, property passes by beneficiary designation, such
as on a life insurance policy or a retirement account. Here, the beneficiary contacts the life insurance company and they are paid the death benefit. Similar to the beneficiary designation are bank accounts that are held in trust for a beneficiary of pay on death to the beneficiary. Again, upon death, these accounts are paid to the name beneficiary. Sometimes, the decedent executed and properly funded a revocable living trust. Sometime during their lifetime they transferred all of their property – everything they owned – to their trust. Then, upon their death, they don’t own any property -the trust owns it all. But sometimes, none of this happens.
The best-laid schemes o’ mice an’ men, Gang aft agley (often go awry) – Robert Burns, To a Mouse
When a decedent dies owning property in their own name, without any beneficiary designation, their estate has to go through probate. Now, despite what anyone else tells you, probate is not necessarily the end of the world. There are attorneys and organizations out there who want you to believe that all probate is always terrible all of the time. While for most people probate avoidance is a good thing, it’s not always true. Sometimes, probate can actually be a good thing. But let’s back up a bit. What is probate – or estate administration? Probate is a court supervised process in which a personal representative (sometimes called an executor) is appointed by the court to marshall the Decedent’s assets, identify and pay the Decedent’s creditors, and then distribute the assets to the beneficiaries. It doesn’t have to be a big deal. And when you hear horror stories, a trust would not have avoided the horror. People sue over trusts too, and a revocable trust doesn’t avoid the decedent’s creditors.
What are some of the benefits of probate?
- The Court rules on the proper disposition of assets
- Substantially shorter period for creditors to file claims against the estate (3 months vs. 2 years)
- Clearer Title on Property
I’m not saying that probate is something to strive for. But sometimes, it’s necessary.
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