Probate is the legal process used to make sure a person’s property and possessions are distributed correctly upon their death. The person’s property and possessions that need to be distributed after death are referred to as their estate. The probate process will take place in the state and county where the deceased person lived at the time of their death.
In a nutshell, the probate process will ensure that
- Debts owed by the deceased person are paid;
- Someone is in charge of distributing the estate; and
- The estate is distributed correctly.
How Do Probate Courts Work?
For someone that has a will in place upon their death, the court will confirm that the will was properly executed (signature, witnesses, etc.). If the will is found to be valid and properly executed, then the court will appoint an “executor”, which is the person that that the deceased individual chose to carry out the instructions in the will. (The executor is also sometimes referred to as the “personal representative”).
The process is, of course, a little more complicated when someone dies without a will. The probate judge will appoint someone (usually the next-of-kin) to administer the deceased person’s estate. But first, the court will help to determine debts owed by the deceased person, what the value of the estate is, and who should inherit based on the law, which varies by state.
Does Everything Have to go through the Probate Process?
The probate process can be long, drawn out, and expensive. Hence, many people prefer to structure their assets in a way that the probate process is largely avoided in order to reduce the amount of stress on their beneficiaries. Also, probate is a public process and is sometimes avoided to the extent possible so that the entirety of the deceased person’s debts and assets are not made public.
The following items (with the proper documentation, of course) will not have to go through probate:
- Insurance Policies: Any insurance policy with a beneficiary already named will not have to go through probate. This is part of the reason it is so important to update the beneficiary on your policies when necessary.
- Assets in a Living Trust: Anything in a living trust is legally owned by the trust, so these assets can avoid probate court and be distributed to the trust beneficiaries.
- Jointly Held Properties: Real estate that has your name, as well as someone else’s, on the deed will go to the other person listed on the deed.
- Assets that are Payable on Death (POD) or Transferable on Death (TOD): It can be clearly stated in paperwork for bank accounts, stocks, retirement accounts, and even vehicles that the asset is POD or TOD to a named beneficiary.
In addition, “small estates”, as defined by each state, are exempt from the probate process. The definition of “small estate”, as well as the method used to calculate the estate’s value, varies from state to state.
For example, California law defines a small estate as anything under $166,250, whereas Michigan defines a small estate as anything under $15,000. For this reason, it is extremely important to determine the exact laws in the state that the deceased person lived at the time of their death.
What are Some Basic Costs Related to Probate?
The probate process involves several fees. These fees include:
- Executor Fees: The deceased person can state exactly how much they want the executor to be paid for their services, but if they do not, then the fees are dictated by state law.
- Court Fees: These also vary according to state law and can cost between a few hundred dollars to over a thousand dollars. The complexity of the estate and the number of forms that must be filed will determine the court fees.
- Attorney’s Fees: Not all estates will require an attorney’s help, but for those that do, the attorneys fees are dictated by state law.
Probate costs will increase if an estate is large, complex, if there is no valid will, and if there are disputes among heirs. Usually the total of all fees will amount to between 3% and 8% of the estate’s total value.
How Do Probate Costs Vary Between States?
Some states have laws limiting executor and probate attorney fees, and many states have simplified court proceedings for small or simple estates that make the probate process more efficient and inexpensive.
The Uniform Probate Code is a model code regulating the probate process. The UPC has been adopted, with minor variations, by the following states:
- New Jersey
- New Mexico
- North Dakota
- South Carolina
- South Dakota
While some states rely on fee schedules set in statute, those that have adopted the UPC simply require lawyers to charge “reasonable” fees. The cost of probate in states with statutory fee schedules is almost always several times higher than in states using the UPC.
The following states limit the amount that a probate attorney may charge to a percentage of the estate’s value:
How Do Probate Attorney Fees Work?
In states where probate attorney fees are not set by statute, the cost to go to probate court will depend on the method the lawyer uses to charge for the work. There are three main methods that lawyers use to charge for probate work:
- By the Hour: Probably the most common method is to bill by the hour. The rate and cost to hire a probate attorney will vary based on the state and on how much experience the lawyer has.
Flat Fee: This is common when using an attorney who has done a lot of probates. They know about how long the work takes, and some attorneys find that clients are more comfortable knowing the total probate lawyer fees up front.
Percentage of the Estate: Some states authorize lawyers to collect a percentage of the value of the estate as their fee. Lawyers are allowed by law to collect percentage fees in around 7 states.
About ⅓ of probate cases are resolved for lawyer fees of $2,500 or under. About 45% of cases cost between $2,500 and $10,000 and roughly ¼ of cases cost upwards of $10,000. The cases with higher costs for the probate lawyer are almost undoubtedly larger and more complex estates.
Are There Limitations to Executor Fees and Probate Attorney Fees?
If there is no will or if the will doesn’t mention anything about payment, state law will determine the fee that an executor is entitled to receive.
Some states calculate the cost by multiplying the gross value of the estate by a specific percent, which varies based on the amount of the estate. The percentage of the fee goes down as the value of the estate goes up, so that the executor fee is not enormous.
Other times, the fee is calculated as a percentage of the transactions that the executor handled. In yet other states, the amount of the fee is left to the discretion of the probate court. The judge decides what is a “reasonable” fee.
Do I Need a Lawyer for Help with Probate Proceedings?
Dealing with probate of an estate is something that almost no one has knowledge of or experience with, unless they are a lawyer. It is incredibly likely that hiring a probate lawyer to handle the situation will be well worth it.
If for no other reason than to obtain an initial consultation, it is a good idea to contact an estate lawyer near you.