What is Probate and Should It Be Avoided

September 20, 2023

Probate is the court procedure used to settle a deceased person’s estate and ultimately distribute any remaining assets to his or her heirs or other named beneficiaries. The probate process may be utilized whether someone died with a will (testate) or without a will (intestate). If a decedent dies testate, probate will be administered in accordance with the instructions left in his or her will; however, if a decedent dies intestate, state law will dictate how assets in his or her estate will be distributed.

When is Probate Required?

In general, probate is necessary whenever a decedent dies with property titled in his or her individual name that needs to be retitled before it can be transferred to the intended beneficiary. For example, if a decedent left a specific bequest of real property to his spouse, in most states, if the real property was owned in his individual name, then probate will be required to re-title the property in the name of his spouse.

There are a few instances when probate will not be required:

• In the example above, if the real property was owned jointly with his spouse, then probate would not be necessary because the real property would automatically be transferred to the spouse as the surviving joint owner.
• If an asset owned by the decedent had a designated beneficiary, then probate may be avoidable to transfer such asset. For instance, retirement assets (e.g., 401ks, IRAs) and life insurance policies typically have the ability to designate a beneficiary. In that case, the asset can be transferred directly to the named beneficiary without the need for probate. But, if a beneficiary is not named, or if the named beneficiary dies before the decedent, then probate may still be required.

Finally, if the estate assets are a nominal amount (which varies depending on the state and whether the amount is indexed for inflation), there is a possibility the assets could be transferred with a Small Estate Affidavit in lieu of a probate proceeding.

Why Avoid Probate?

In some states, probate is exceptionally expensive and residents of (or others owning property in) such states try to avoid probate at all costs. However, in many states, probate is not necessarily an expensive or difficult process, but it can be time consuming and potentially delay distributions. This is especially true in the event of disputes that result in litigation. Or, if an individual owns real property in more than one state, he or she may want to avoid probate proceedings in multiple states.

Lack of privacy in a probate proceeding can be a compelling reason to avoid probate for many families wishing to keep their personal affairs and finances out of the public eye. An individual’s will becomes a public record, as do the related documents filed with the court in a probate proceeding.

How Can Probate Be Avoided?

Putting in place a trust can be a way to avoid the probate process altogether. Upon establishing a revocable trust during your lifetime, property may be transferred to such trust thereby removing it from your probate estate. In addition, it allows the trustee of your trust to manage your assets in the event of your incapacity, and provides an additional layer of creditor protection for the beneficiaries of your trust. And, a trust agreement is a private document and does not typically become a public record.

Besides utilizing a trust structure, certain assets (such as those with beneficiary designations or owned jointly as mentioned above) are considered non-probate assets. Since they are not part of your estate, they will not usually require probate in order to transfer to the intended owner (assuming there are proper beneficiary designations in place and have otherwise been addressed appropriately).

What is Your Wealth Planning Strategy?

Have you explored what investment and financial planning strategies might be available to you? Many factors should be considered in determining a strategy that meets your objectives. It’s important to have experienced advisors to assist you. First Western Trust can help you implement an effective wealth planning strategy.

About First Western

In 2002, Scott Wylie, an entrepreneur and banker, led a group of Western business leaders to create an organization that provides individuals with high levels of sophistication and personalized boutique service. The result of this effort is the first Western-based private bank – First Western Trust.

We believe that each of our clients shares our entrepreneurial spirit and values our sophisticated, high-touch wealth management services. We offer a trusted advisor platform with an established approach to investment management through a branded network of private boutique offices.

To learn more, visit us online at www.myfw.com.

Investment and insurance products and services are not a deposit, are not FDIC insured, are not insured by any federal government agency, are not guaranteed by the bank, and may go down in value. This information is not legal, investment, accounting or tax advice and is for informational purposes only. Readers should not rely on this information as a substitute for their own research or for obtaining legal, accounting or tax advice from their own counsel. Information is current as of August 21, 2023 and is subject to change without notice.