The pros and cons of probate
- By Milt x_Zall
- Nov 02, 2000
How does the probate process fit into your estate plans? By using the pros
and cons outlined below, you can meet with your financial planner and determine
whether to use or avoid the probate process while planning your estate.
But first, here's an overview of wills, trusts and the duty of probate
The assets in your will ultimately fall under the jurisdiction of a
probate court, although most states have exemptions for smaller estates.
Probate court determines whether a will is valid and administers the estate
to ensure that all instructions contained in a person's will are carried
Assets in certain types of trusts can avoid the probate process. A trust,
which is similar to a will, is a written document dealing with the transfer
of assets and responsibilities. For assets in a trust to avoid probate,
the trust must be a "living" or inter-vivos trust, which means it isn't
a part of the will. Testamentary trusts are created at death by a will;
such trusts must be presented for probate because they are found within
the will itself.
It's important to recognize that probate laws vary from state to state.
To determine how probate could affect your estate plans, consider the
following pros and cons:
Advantages of Probate
* Protection from creditors. If an estate has been probated and its
assets distributed, the estate cannot be attacked by creditors seeking to
make a claim on the estate's assets.
* Fair analysis of your estate's value. If your heirs believe property
has not been properly valued in the probate process, thereby increasing
the potential estate tax, your lawyer or executor could bring in an independent
appraiser. The probate judge may approve a new appraiser or take a position
between the independent appraiser and the court-appointed one.
* Protection from some taxation. An estate is a separate taxable entity
and can provide opportunities to reduce taxes by shifting income to an heir,
or — if the estate's tax bracket is lower than the heir's — keeping it in
the estate longer.
* Lower cost of legal counsel. It may cost more for legal counsel to
draft a living trust than to draft a will.
Disadvantages of Probate
* Higher cost to your estate. Probate can be expensive. Laws in some
States may set fees, but they are generally for ordinary services. If the
attorney does extraordinary work, the fees can be greater. The executor
may also charge fees and, if the executor does not waive his or her fee,
the actual cost of your estate may double. The fees may be based on gross
values instead of net values.
* Delay in transfer of assets. Estate settlement in probate can take
up to one or two years, and assets in probate often suffer from lack of — or overly conservative — management during the settlement process. In
some states, it can take a month or more to receive court permission to
sell an asset, which means that an executor may be unable to respond to
a sudden change in market conditions. Also, executors tend to be conservative
during probate because of their financial liability if they are judged to
* Public knowledge of the estate. Probate is a public process. For the
process to work, the law must be a matter of public record.
Zall, Bureaucratus columnist and a retired federal employee, is a freelance
writer based in Silver Spring, Md. He specializes in taxes, investing, business
and government workplace issues. He is a certified internal auditor and
a registered investment adviser. He can be reached at [email protected]