For many people, when they hear the word “probate” it conjures up something to be avoided like the plague. Most of that stems from misunderstanding the process and procedure. This is the first of a four part series in which Smith Jadin Johnson explains when probate is appropriate for clients and when it should be avoided.
What Assets are Probated?
Everyone’s assets fall into two categories upon death: non-probate and probate assets. A non-probate asset, generally speaking, is any asset that automatically passes to another upon the death of the owner. Some examples of non-probate assets are real estate held in joint tenancy, financial products with named beneficiaries (insurance proceeds and IRAs), accounts with transfer on death provisions (checking accounts), and assets held in trust (revocable and irrevocable). Probate assets, by contrast, are all the other assets and by default go through probate. For most clients, the largest probate asset is the decedent’s homestead.
Whether a client should simply execute a will or set up and monitor a revocable trust as his or her main estate planning vehicle depends on how involved the client wants to be with his or her estate, the nature and amount of probate property and cost.
Which Estates Should and Should Not Go Through Probate?
One advantage of a will is, if drafted properly, it only needs to be drafted once absent a change in family circumstances. Unlike a trust, the client does not have to constantly monitor his or her estate, ensuring new assets are properly titled. The will simply covers everything you own even as you acquire more assets.
Another advantage of the will is cost. Wills are relatively less expensive than a trust not only at the outset but during the life of the client. Thus, while wills are probated, and probate has a cost, if the assets of the estate are not numerous and/or complex, then the costs of probate may outweigh the costs of creating and updating a trust.
By contrast, larger estates, particularly those involving numerous parcels of real estate and interests in privately held businesses may benefit from the increased complexity of a properly drafted revocable trust. In addition, estates that own assets in different states should try to avoid probate as a probate proceeding must be opened in each state in which the estate’s assets lie. This can be costly to one’s heirs.
Stay tuned for the next post in this series in which Smith Jadin Johnson expands on when it is appropriate to execute a will and feel comfortable going through the probate process.
-Charles Austinson, Attorney @ Smith Jadin Johnson, PLLC
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