Helping to Understand Probate [2011-06-02]
Kimmer W. Callahan
In my practice as an estate-planning attorney I talk with a lot of people about planning their affairs. In doing so, I have found that there is a lot of misunderstanding and misinformation about probate by the general public. Let’s take a closer look at what probate is, what it does, and the disadvantages of using probate to administer your estate at your death. For purposes of this article, I will focus on the administration of an estate when there is not a surviving spouse who will receive the entire estate. In other words, I will focus on single individuals and/or when both spouses have passed away.
First, lets define what “probate” is. Probate is a legal court process which determines if a decedent has a valid last will and testament and provides a means for the administration of the decedent’s estate. Here in Kootenai County, Idaho, an average probate will take about twelve months to complete. It can take much longer if there are any problems, such as creditor claims, disputes about the validity of the will, or family disagreements about how the estate should be settled.
When must a person’s estate be probated? Generally speaking, all estates must be probated, unless their estate fits into one of a few exceptions. If the deceased person had no real estate and the value of all other assets is less than $100,000, then the heirs can generally us what is known as a “small estate affidavit” to claim ownership of the estate’s assets. Another means of passing assets without probate is to name beneficiaries on financial accounts, such as bank accounts and investment accounts. Any accounts that have beneficiary designations will not be subject to probate. If someone owns real estate (a home), the estate generally must be probated, regardless of the value of the property!
What are the disadvantages of the probate process? Well, the first is the amount of time. As stated above, it will usually take about one year to complete the process. This leads to the next disadvantage – the cost. As you can imagine, having an attorney involved in a year-long process can be expensive. How much does probate cost? The two primary costs of probate are the attorney fees and the executor fees. Each state establishes how the attorney fees and executor fees are determined. For example, in California both the attorney and executor receive a percentage of the gross value of the estate. The rate ranges from 1.5% to 4% of the gross (not net) value. So, for a modest estate of $500,000.00, the attorney and executor would each receive $13,000. And this does not include the costs of court filing fees, publication cost, or other actual estate administration expenses. In Florida, a general rule is the attorney and executor can charge a fee of 3%. In Pennsylvania the rate for the attorney goes as high as 7%, based on court decisions addressing the reasonableness of fees charged. Under Idaho law, the attorney and personal representative are entitled to “reasonable compensation”. When there is a paid attorney and personal representative, I usually estimate that the cost of probate, on a national average, runs about 5% of the value of the estate.
The best tool I know of to avoid the cost and time delay of probate is to use a living trust. A living trust provides an alternative to the probate process for the administration of the estate. In most cases, there is not a requirement or need to have an attorney involved in settling an estate with a living trust. As a result, the costs of administering the estate with a living trust can be significantly less expensive. Often the estate, with a living trust can be settled in significantly less time as well. In general, I find that a living trust provides a simpler and less expensive means to settle an estate. If you would like to find out if a living trust might be a good choice for you, please attend one of our free workshops or set an appointment for a free consultation.
Call now for your free, no-obligation consultation – 208.664.9228.
Callahan & Associates, Chtd.
By Kimmer W. Callahan
Attorney at Law
Provided as an educational service of Callahan & Associates, Chtd.