What Should I Know About Probate Costs?

February 27, 2023

The cost of probate depends on several factors. One of the most important is the state where the decedent lived. The cost of probate varies from state to state, depending on the general cost of living in the state and state probate laws. Other factors also impact the cost of probate.

Nasdaq.com’s recent article entitled “How Much Does Probate Cost?” provides a breakdown of fees associated with probate. The process of probating an estate will settle the estate after the decedent’s death and following their last will and testament. It’s also used for those who die without a will or intestate. Assets owned only by the decedent are usually addressed in the will and are distributed according to the decedent’s wishes. An executor is usually named in the will, and an administrator of the estate is appointed in the case of a decedent dying intestate. The executor takes an inventory of the decedent’s assets, pays the decedent’s outstanding debts and presents the inventoried estate to the court for settlement. If there are no objections to the will, the estate is closed. If there are objections, the probate judge is responsible for settling them. The longer the probate process drags on, the more expensive it will be.

Probate can be a time-consuming process. A modest estate may take six to 24 months to settle. Larger estates can take even longer, if they’re complex. It also necessary to add in more time if the will’s contested or beneficiaries can’t be found. The longer the process, the more expensive it becomes. Probate costs in 2021 run about 3% to 8% of the value of the estate. Let’s look at the key costs of probate:

Court Costs. This includes filing fees. Some states require the same filing fee for all estates, while others have a graduated scale depending on the size and complexity of the estate. The more complex the estate, the higher the court costs.

Executor Costs. The executor of a will is typically paid at least a nominal fee. Fees are mandated by state law, unless the decedent specifies in his or her will what the executor should be paid. Some states permit a flat and “reasonable” fee which may be determined by the court. Other states require a graduated fee, such as a certain percent of the estate for the first $100,000 and so on. If the will doesn’t state the executor’s fee or if the decedent dies intestate, the court determines the executor’s fee.

Accounting Fees. Accounting costs can be high with more complex estates. If the decedent has complicated business affairs to sort out or owns many stocks and other securities, the complexity will require higher accounting fees. The accountant will also have to file federal and state taxes in the form of a final return.

Attorney Fees. When the executor believes an attorney is needed, the attorney is paid out of the estate. Attorney’s fees can be state-mandated, determined by the court, or set by the attorney depending on the anticipated workload.

Estate Administration Fees. The executor will often incur significant costs of administering the estate, such as property appraisals, and a real estate agent may have to be hired and paid to dispose of property or businesses. A property may also have to be managed until it’s sold or the estate is closed.

Reference: Nasdaq.com (Feb. 2, 2023) “How Much Does Probate Cost?”

Are Testamentary Trusts a Good Idea?

August 25, 2022

Not everyone wants to leave everything to their heirs without restrictions. Some want to protect money inherited from their own parents for their children or want to keep an irresponsible child from squandering an inheritance. For people who want more control over their assets, a testamentary trust might be useful, according to the recent article “What Is a Testamentary Trust and How Do I Create One? from U.S. News & World Report. A testamentary trust can also be used to leave assets to minor children, who may not legally inherit wealth directly.

However, your estate planning attorney may have some other, better tools for you.

A testamentary trust is a trust created to hold assets created in a last will and testament. It does not become active until after a person dies and the will has been validated by probate court. Once this has happened, the trust is activated and the decedent’s assets are placed into the trust. At this point, the trustee is in charge of the trust’s management and asset distribution.

A testamentary trust is different from a living trust. The living trust, also known as a revocable trust, is created while the grantor (the person making the trust) is still living. When the person dies, the revocable living trust doesn’t go through probate and assets are distributed according to the directions in the trust.

Both testamentary and living or revocable trusts are used in estate planning. However, the living trust may have far more flexibility and be easier to manage for a very simple reason: testamentary trusts are part of the probate process, administered through probate for as long as they are in effect.

There are advantages and disadvantages to both kinds of trusts. The testamentary trust is often used to manage assets for minor children. It’s also a good tool if you’re worried about an adult child getting divorced and keeping the family money in the family. The long-term court oversight is more protective, which may be desirable, but it can also be more expensive.

The best reason for a testamentary estate? They are faster to set up. However, after death they create more work for the remaining family members.

Your will must contain specific directions for what assets go into the testamentary trust. Assets with beneficiary designations, such as life insurance policies and retirement accounts, don’t go into any trusts, unless a trust is designated as the beneficiary of the policy or account. They are instead distributed directly to beneficiaries outside of the probate estate.

Changing or annulling a testamentary trust is relatively easy while you are living—simply update your will to reflect your new wishes. However, once you have passed, the testamentary trust becomes irrevocable and may not be changed.

Which is best for your situation? Your estate planning attorney will evaluate these and other estate planning tools to find the best solutions to protect you and your family.

Reference: U.S. News & World Report (July 14, 2022) “What Is a Testamentary Trust and How Do I Create One?

Who Should Be Your Executor?

August 16, 2022

While the executor is usually a spouse or close family member, you can name anyone you wish to be your executor. A bank, estate planning attorney, or professional trustee at a trust company may also serve as the executor, according to a recent article from Twin Cities-Pioneer Press titled “Your Money: What you need to know about naming an executor.”

Regardless of who you select, the person has a legal duty to be honest, impartial, financially responsible and to put your interests ahead of their own. This person and one or two backup candidates should be named in your will, just in case the primary executor declines or is unable to serve.

How does someone become an executor? When your will is entered into probate, the court checks to be sure the person you name meets all of your state’s legal requirements. Once the court approves (and usually the court does), then their role is official and you executor can get to work.

The executor has many responsibilities. You can help your executor do a better job by making sure that financial and personal business documents are organized and readily available. Here are some, but not all, of the executor’s tasks:

Making an inventory of all assets and liabilities
Giving notice to creditors: credit card companies, banks, mortgage companies, etc.
Filing a final personal tax return and filing the estate tax return
Paying any debts and taxes
Distributing assets according to the directions in the will and in compliance with state law
Preparing and submitting a detailed report to the court of how the estate was settled

If there is no will, or if no executor is named in the will, or if the executor can’t serve, the court will appoint a professional administrator to settle your estate. It won’t be someone you know. Your family may not like all of the decisions made on your behalf, but there won’t be any options available.

Does an executor get paid? A family member may or may not wish to be paid. However, given how much time it takes to settle an estate, you might feel it’s fair for them to be compensated. The amount varies depending on where you live, but you can leave the person between 1% to 8% of your total estate. A professional administrator will likely cost considerably more.

How do you document your estate to help out the executor? If you think this task is too onerous, imagine how a family member will feel if they have to conduct a scavenger hunt to identify assets and debts. If a professional administrator ends up doing this work, it will take a bigger bite out of your estate and leave loved ones with a smaller inheritance.

Start by making a list of all of your assets and liabilities, plus a list of all advisors who help with the business side of your life. Recent tax returns will be helpful, as will contact information for your estate planning attorney, CPA and financial advisor. You should include retirement accounts, life insurance policies and any assets without beneficiary designations.

Reference: Twin Cities-Pioneer Press (June 25, 2022) “Your Money: What you need to know about naming an executor”

What You Need to Know about Probate

September 16, 2021

We often read about celebrities who die without an estate and how everything they own must go through probate. The article titled “What to know about probate” from wmur.com explains what that means, and what you need to understand about wills, probate and estate planning.

Probate is a process used to prove that a person’s will is valid and to supervise how their estate is handled. It involves a court that focuses on this area. Much about the process depends upon the state in which it’s taking place, since these laws vary from state to state.

When someone dies without a will, they have failed to provide instructions for the distribution of their property. Their assets will still be distributed, but the laws of the state will determine what happens next. The state follows intestacy laws, which outline pre-set patterns of distributing property. In one state, property will go to the spouse and children. In others, the spouse may get everything.

Other decisions are made for your family when there is no will. If you have not named an executor, the court will appoint someone to oversee your estate. The court will also appoint a person to raise your children, if no guardian has been named for minor children. A family member may be chosen, but it may not be the family member you wanted to raise your kids, or it may be a stranger in a foster home.

Another reason to have a will is that probate can take a few months, or, depending on where you live, a few years, to complete. If there is litigation, and not having a will makes that more likely, it would take longer and will undoubtedly cost more. While this is going on, assets may lose value and heirs may suffer from not having access to assets.

Probate is also costly. There are legal notices to be published, court fees, executor fees and bond premiums, appraisal fees and attorney expenses.

Having an estate plan also means tax planning. While the federal estate tax as of this writing is $11.7 million per individual, it will not be that high forever. If the proposals to lower the federal estate tax to $3.5 million per person come to pass, will your estate escape estate taxes? What about your state’s estate or inheritance taxes?

Probate is also a very public process. Once a will is admitted as valid by the court, it becomes a public document. Anyone and everyone can view it and learn about your net worth and who got what.

With all these drawbacks, are there good reasons to allow your estate to go through probate? In some cases, yes. If multiple wills have been found, probate will be needed to establish which will is the correct one. If the will is confusing or complex, probate could provide the clarity needed to settle the estate. If beneficiaries are litigious, probate may be the voice of authority to quell some (but not all) disputes. And if the estate has no money and a lot of debt, it may be the probate court that sorts out the situation.

Every estate is different. Therefore, it is important to speak with an estate planning attorney to have a will, power of attorney and any health care directives created and properly executed. Every few years, these documents should be reviewed and revised to keep up with changes in the law and in your personal life.

Reference: wmur.com (July 29, 2021) “What to know about probate”

What’s Involved in the Probate Process?

October 26, 2020

SWAAY’s recent article entitled “What is the Probate Process in Florida?” says that while every state has its own laws, the probate process can be fairly similar. Here are the basic steps in the probate process:

The family consults with an experienced probate attorney. Those mentioned in the decedent’s will should meet with a probate lawyer. During the meeting, all relevant documentation like the list of debts, life insurance policies, financial statements, real estate title deeds, and the will should be available.

Filing the petition. The process would be in initiated by the executor or personal representative named in the will. He or she is in charge of distributing the estate’s assets. If there’s no will, you can ask an estate planning attorney to petition a court to appoint an executor. When the court approves the estate representative, the Letters of Administration are issued as evidence of legal authority to act as the executor. The executor will pay state taxes, funeral costs, and creditor claims on behalf of the decedent. He or she will also notice creditors and beneficiaries, coordinate the asset distribution and then close the probate estate.

Noticing beneficiaries and creditors. The executor must notify all beneficiaries of trust estates, the surviving spouse and all parties that have the rights of inheritance. Creditors of the deceased will also want to be paid and will make a claim on the estate.

Obtaining the letters of administration (letters testamentary) obtained from the probate court. After the executor obtains the letter, he or she will open the estate account at a bank. Statements and assets that were in the deceased name will be liquidated and sold, if there’s a need. Proceeds obtained from the sale of property are kept in the estate account and are later distributed.

Settling all expenses, taxes, and estate debts. By law, the decedent’s debts must typically be settled prior to any distributions to the heirs. The executor will also prepare a final income tax return for the estate. Note that life insurance policies and retirement savings are distributed to heirs despite the debts owed, as they transfer by beneficiary designation outside of the will and probate.

Conducting an inventory of the estate. The executor will have conducted a final account of the remaining estate. This accounting will include the fees paid to the executor, probate expenses, cost of assets and the charges incurred when settling debts.

Distributing the assets. After the creditor claims have been settled, the executor will ask the court to transfer all assets to successors in compliance with state law or the provisions of the will. The court will issue an order to move the assets. If there’s no will, the state probate succession laws will decide who is entitled to receive a share of the property.

Finalizing the probate estate. The last step is for the executor to formally close the estate. The includes payment to creditors and distribution of assets, preparing a final distribution document and a closing affidavit that states that the assets were adequately distributed to all heirs.

Reference: SWAAY (Aug. 24, 2020) “What is the Probate Process in Florida?”

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