Understanding the meaning of ‘probate’
Of all the misunderstood legal terms in estate planning, probably the most unfairly maligned is the idea of probate. In fact, probate has been so regularly attacked in popular periodicals and in do-it-yourself estate publications that average people have sometimes gone to great expense to avoid the process altogether.
The result is that some authors and speakers in the field of “how to avoid probate” have made significant income while readers are just as confused as ever as to why probate is considered undesirable.
One publication that I have reviewed actually never used the term living trust without at the same time describing it as a means to avoid the anguish and cost of probate.At least as to Pennsylvanians, a living trust can be as costly and time consuming or more so than probate, and anguish is not exactly the word that would be used to describe either.
According to lawyers from Dudeck Law Firm, probate simply refers to the process of recording a will with the Register of Wills and then administering the estate of a decedent until all the decedent’s assets are located and distributed to the appropriate parties and the bills are paid.
If you are planning to sell a property that you inherited, it is advisable to consult a probate real estate agent.
One critical point to note is that avoiding probate is not the same as avoiding taxes.
Property placed in a trust, particularly a revocable trust, can still be taxed, for many purposes, similarly to property not placed in trust.Some property that passes under a will (such as property passing to a surviving spouse), may not be taxed for inheritance tax purposes at all even though it is clearly referenced in a will.
In most cases, though, husbands and wives jointly title major assets such as their home as tenants by the entireties.These pass inheritance tax-free. It may not be necessary to probate a will even if there is one.Taxation and probate are not the same. Having made a will and having to probate it are not the same.
What the “how to avoid probate” authors tap into most of the time is the fear that people have that either (a) their property is going to be tied up indefinitely in a bureaucratic system or (b) the government is going to tax their hard-earned assets out of existence.
What many people would like to do is to take their assets and to place them into something like a trust that they can control at any time and, at the same time, avoid all taxes.If the answer were that easy, everyone would have his property in trust and that would be the end of it. The answers, naturally, are not that easy.
The first point to realize is that everyone’s circumstances are different.Structuring that works beautifully for one family may not work at all for another depending on their individual objectives, desires and amount and type of assets.Therefore, general rules that are proclaimed as applying to everyone are usually suspect.
The next point to consider is what are the alternatives to administering the assets under a will.
If a living trust is prepared, the assets (all of them) will have to be titled in the name of the living trust or, as to any assets that have not been titled in the name of the trust, there will likely still be an estate to administer at the time of death.There would be double duty, so to speak. If a living trust is prepared, it should be with a reputable practitioner who will continue on to monitor its progress to deal with these potential pitfalls.It should be reviewed and updated on a regular basis.
Door-to-door salespersons and mail order trust offers have been known to be followed by solicitations for financial products, many of which are poor investments.
Properly prepared and managed estate plans may be expressed either in wills or in living trusts. Importantly, the testator (or settlor, in the case of a living trust) should know how his or her assets will be distributed.
Life insurance proceeds, for instance, are distributed to the beneficiary designated on the policy regardless what may be stated in a will or in a trust.The same is true for 401(k)’s and IRA’s and beneficiaries named under other pension plans.
The overall estate plan has to be reviewed, considered and analyzed whether in preparing a will or preparing a living trust or assets may be directed to unanticipated recipients.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.