Why does an estate have to go through probate?
Probate is one method for the orderly winding up of a deceased persons affairs. It is supervised by the court and ensures that the deceased person's taxes and creditors are paid and that his or her estate is distributed as he or she wished.
Why does an estate have to go through probate?
The decedent probably left a will, specifying who is to receive his or her property on his or her death. However, the will doesn't operate automatically. We usually need the help of the court to carry out its terms.
Let's take the following example: Mary Jones died last week, leaving two adult daughters. Her will left everything equally to the two daughters. At her death, Mary had a bank account containing $50,000.00, a house worth $500,000.00 and 100 shares of XYZ Corporation stock worth $5,000.00. She also had a credit card with a balance of $1,000.00 and substantial medical and hospital bills from her last illness.
Mary's two daughters go to Mary's bank, show the teller the will and try to close out the bank account. The bank teller needs to know the following: 1) Are these really Mary's daughters? 2) Is this really Mary's last will (maybe there was a later will, omitting one of the daughters)? 3) Is this really Mary's will at all? Maybe it is a forgery. Maybe Mary was senile when she signed it and didn't know what she was signing. 4) Have all of Mary's bills and taxes been paid? 5) Is there someone else (such as relatives of Mary's deceased husband) who may have a claim on this money?
Before this bank account can be closed, the bank will require proof that someone has court authority to withdraw the money. The Superior Court, through the probate process, will ensure that the above questions are answered satisfactorily.
Next, Mary's daughters try to sell Mary's house. However, the last deed to the house on record with the County Recorder's Office lists Mary Jones as the owner. In order to change title to the property, Mary Jones must sign a new deed, transferring title to the house to the new buyers. Unfortunately, Mary Jones is not in a condition to sign a deed. The buyer will not accept the signatures of Mary's daughters, because he has the same questions the bank had. Do they have the legal right to sign a deed? Are they really Mary's daughters? Did Mary make a later will leaving everything to charity?
After Mary's death, only Mary's court-appointed representative (her executor or administrator) has the legal authority to sign a deed transferring title to the house.
The same questions are asked once again when Mary's daughters try to transfer the XYZ stock into their names.
Mary's creditors (the credit card company, the doctors and the hospital) also wish to be paid, and they expect that they will be paid by Mary's estate. The probate process will ensure that this happens. Further, if Mary's daughters do somehow gain control of Mary's assets without going through probate and without paying the creditors, the creditors may later sue the daughters for the amount of their bills. Therefore, the probate process actually protects the daughters by making sure that when they receive their portion of the estate, it is free and clear and none of Mary's creditors may come after her daughters.
Most people have heard horror stories about probate cases that dragged on for years. In extremely rare cases, this can happen. However, the vast majority of all probates are concluded in less than one year, and most estates close within seven to eight months.
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The biggest single reason why probate takes so long is that the law requires a four-month waiting period after the executor is appointed for creditors to learn of the death and submit their claims to the estate for payment. While this may seem like a long time, remember that the beneficiaries or heirs of the estate are protected from the decedent's creditors if they follow the proper probate procedures.
Some reasons why an estate may not close at the earliest possible time include failure to sell real property (in a slow real estate market, for instance); a challenge to the will by a person who wants a larger share or a person who has been omitted; a disputed creditor's claim; inability to locate all of the heirs; a lawsuit to evict tenants from the decedent's rental property; any other lawsuit that the decedent or the estate may be involved in, and income tax or estate tax problems.
Many people have attended seminars where they are told that the probate process is outrageously expensive and loots the assets of the decedent's estate. Actually, probate usually costs less than the percentage you would pay to a real estate agent to sell a house of the same value as the estate.
The executor and the attorney he or she hires are entitled to receive the same fee, which is based on the size of the estate. This fee is calculated as follows: 4% of the first $100,000.00, 3% of the next $100,000.00, 2% of the estate over $200,000 and 1% of the estate over $1 million.
In Mary Jones' case, her total estate is $555,000.00. The executor and the attorney would each receive the following:
4% of $100,000.00 4,000.00
3% of $100,000.00 3,000.00
2% of $355,000.00 7,100.00
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Total: $14,100.00
Attorney's and executor's fees, therefore, would total $28,200.00, which is five percent (5%) of the total estate. In practice, many times the executor will waive his or her fee.
In addition, court filing fees, appraisal fees and the cost to publish the notice of death in the newspaper usually total another $750.00 to $1,000.00.
All of these costs are paid for by the estate, and not by the beneficiaries. In fact, the attorney and the executor cannot receive their fee until the estate is closed.
The brief articles on this page are for informational purposes only. They are not, nor are they intended to be, legal advice. They do not, nor are they intended to, establish an attorney-client relationship. You should consult an attorney for individual advice regarding your specific situation.
Copyright©, 2009 - 2012, Steven C. Dimick