Of all the burdens of coping with a death in the family, probate may be one of the most expensive. Probate is the legal process that starts after a death to authenticate the will of the deceased, also known as the decedent. The probate process is meant to distribute assets to pay debts and taxes, and to transfer the remaining assets to the heirs as stipulated in the will. While these are necessary actions after a death, probate involves paying an attorney and court fees, as well as possibly an executor or administrator who is appointed to administer your will. Probate fees vary by state, but ultimately the process can drain an estate, leaving the heirs with markedly less assets than anticipated.
Is Probate Necessary?
Probate laws vary by state, so you should consult an expert about laws in your locality. In general, however, there are five reasons you would go through probate:
- The will is in some way deemed invalid. For example, the validity of the will may be in dispute because it was not written clearly, was not a legal will, or the deceased was mentally incapacitated or under duress when the will was written.
- The deceased had no will. If this is the case, there must be a legal process for distributing the assets and transferring the ownership of property to the heirs.
- Assets were owned solely by the deceased. Probate is necessary to transfer title of the property to the heirs.
- Assets were jointly owned. While the deceased’s property may be jointly owned with a spouse, the deceased’s share of the property may still need to be distributed to other heirs.
- The beneficiaries predeceased the decedent or no beneficiaries were named. Without a clearly defined line of distribution in place, probate is necessary to remove this ambiguity.
How Much Does Probate Cost?
The amount paid to an attorney varies by state, but the greater the value of the estate, the greater the fees are likely to be. In many states, a court will approve a “reasonable” amount negotiated by the survivors and the attorney. But with such vague guidelines, this approach has been criticized because attorneys are often able to negotiate high fees relative to the value of the estate. Lawyers are better positioned to secure favorable fees because grieving, preoccupied survivors are often unfamiliar with the process and there is minimal court supervision to ensure the amount is reasonable for both parties. As such, an estate valued at $400,000 can easily result in probate fees of over $20,000.
In an attempt to simplify probate, most states have adapted all or part of the Uniform Probate Code (UPC). The states that have adopted UPC in its entirety are: Alaska, Arizona, Colorado, Hawaii, Idaho, Maine, Massachusetts, Michigan, Minnesota, Montana, Nebraska, New Jersey, New Mexico, North Dakota, Pennsylvania, South Carolina, South Dakota, Utah and Wisconsin. However, even among these states, probate law can vary widely.
A few states, such as California, Nevada and Wyoming, use a fee schedule in which fees are calculated as a fixed percentage of the estate’s value. This may be more straightforward than the other approach, but fee schedules also result in minimum probate fees that can be increased by adding “extraordinary services.”
In addition to attorney’s fees, there may be various court fees that also vary depending on your jurisdiction. They can include anything from retrieving files from an archive for a couple dollars to filing applications to determine heirship, which can cost a couple hundred dollars.
To settle probate, which in some cases can take months or even years, your survivors need a probate attorney. The attorney will complete the heavy paperwork that is often involved, as well as keep track of filing deadlines and resolve any procedural matters. In some states, probate can be done completely by mail, while in other states an attorney may need to make court appearances.
Because probate and debts at the time of death can quickly drain your estate, getting life insurance that covers your final financial obligations is your best bet for protecting your family.
*The material provided in this article is for informational purposes only. We do not provide legal, tax or accounting advice. Please contact your own advisers for legal, tax and accounting advice.