You Know You Will Die, You Just Don't Know When
1. Probate is a method of transferring assets under court supervision as provided in a will, or if a person dies without a will, transferring assets under court supervision to heirs in accordance with sate law.
2. Assets in the decedent’s name alone must be probated to transfer title. Community and quasi-community property must be probated if it is left by will to someone other than the surviving spouse. Assets that cannot be controlled by a person’s will are not subject to probate. They include (these assets go by operation of law or by a contract):
a. Assets in joint tenancy (operation of law).
b. Life insurance policy proceeds (operation of a contract).
c. Death benefits from qualified retirement trusts, Keogh Plans, and IRA’s (operation of a contract).
d. Assets held in living trusts (operation of law).
3. If the decedent left a valid will, the will is filed upon death with the court for probate, and the court, if it accepts the will, appoints an executor. If the decedent left no will, the court appoints an administrator to serve. The executor or administrator are fiduciaries whom the court supervises.
4. The executor or administrator must collect assets subject to probate, pay debts and death taxes, and request court approval to transfer assets to the decedent’s heirs or to the persons named in the will.
5. The fees charged by executors, administrators and attorneys are set by state law, and the total fee will be based on the size of the estate to be probated.
6. The estate pays income taxes due on the income of probate assets until the assets are distributed or the estate is closed.
7. The usual duration of probate is from nine months to two years. The size and complexity of the probate estate determines the duration of probate. A complicated probate can continue beyond two years.
8. The court grants the executor or administrator approval for transfer of probate assets to the heirs or to persons named in the will.
9. On final distribution and transfer of all probate assets, the court discharges the executor or administrator.
10. The advantages claimed for probate proceeding are:
a. Court protection for the heirs and beneficiaries.
b. Probate cuts off the claims of creditors after the four-month period following the issuance of letters testamentary.
(The personal representative must give notice to known creditors of the estate. Effective January 1, 1992, a similar cut-off procedure exists for the revocable living trust).
c. The transfer of title in a probate is a public record that prevents problems with title companies.
d. Court supervision is available to answer questions and resolve disputes.
e. The probate estate is a separate taxpayer and some tax savings may result.
f. The costs of probate are deductible for income tax and death tax purposes, if properly planned.
11. The disadvantages asserted against probate proceeding are:
a. They are expensive.
b. They are time-consuming and the delays are excessive.
c. Court proceedings are inherently inflexible.
Probate Can Be Expensive:
The personal representative and the attorney each are entitled to the fees shown below.
If extraordinary services are performed by them, the court will allow a reasonable fee to each for those services.
4 percent of first $100,000
3 percent of next $100,000
2 percent of next $800,000
1 percent of next $9,000,000
0.5 percent of next $15,000,000*
Amount accounted for in Executor’s commission Atty Fee
Probate Estate % of Estate
$100,000 $4,000 4%
100,000 3,000 3%
100,000 4,000 2%
1,200,000 25,000 1%
For additional amounts see above*
Probate Can Take A Long Time:
-Generally, probate takes anywhere from nine months to two years or more.
-Difficult or contested probate cases can take much longer.
-Unfortunately, your heirs and beneficiaries will have to wait until probate is concluded to receive the bulk of their inheritance.
Probate Offers No Privacy:
-Another problem with probate is that the proceedings of the probate courts are public record.
(This means that your heirs will have no privacy).
-Almost anyone can go down to the county courthouse and find out exactly how much you owned, as well as how much you owed and to whom.
While much of the federal tax code has been simplified and the marginal tax bracket reduced over the past decade or so, estate taxes will still take a significant portion of your estate.
Unlimited Marital Deduction:
There are a couple of notable exceptions to these taxes:
1. The first is the unlimited marital deduction.
2. The federal government has exempted all transfers of wealth between a husband and wife from federal estate and gift taxes.
(This means that regardless of the size of the estate, there will be no federal estate taxes levied when a husband or wife dies and leaves his or her wealth to the surviving spouse).
Unified Gift and Estate Tax Credit:
Another exception to these taxes is the unified gift and estate tax credit. The unified credit enables almost everyone (except non-resident aliens) to shelter the following amounts:
2004 through 2005 $1,500,000 per individual
2006 through 2008 $2,000,000 per individual
2009 $3,500,000 per individual
2010 $0 estate taxes
2011 and after $1,000,000 per individual
These amounts are sheltered from federal estate and gift taxes.
This means that if the total value of your estate is less than the federal exemption limit upon your death, there will be no federal estate tax due.