Sunday, April 8, 2012

Did You Know A Will Requires Probate?

A common comment that I hear is something like this: "But I don't have to worry about probate, I have my own will."

That's a common misconception. But by their very nature a will has no legal effect until the death of the person who's will it is. And for that reason, to give the will it's authority, or to carry out the terms of a will, it must be supervised by a Court of Law. That means probate. The probate court grants the authority for the terms of a will to be complied with.

Most people, when they learn about probate, and what it is, want to avoid it in their own case. Probate ties up the estate for a period of about 1 to 2 years --- or eleven years in Howard Hughes' case.

Probate costs an average of 5 to 10% of the value of the estate assets in court costs and attorney fees. So if you have a modest $200,000 estate (remember you have to include life insurance as well as all your real and personal property), probate could cost from $10,000 to$20,000. That's a hefty fee.

Court records, by their very nature, are public records. Settlement of an estate can lose all the privacy for the heirs. Anyone can go down to the courthouse and request your probate records. There they can find the names and addresses of all you heirs and everything that was distributed. I don't think you want that known to the world for safety sake.

Their are 3 ways to keep an estate out of the probate court upon a person's death.

One, have a will like this: "Being of sound mind, I have spent all my money while I was still living." The danger of that is to run out of money before you run out of life.

The second way is to have an estate that is of less value that your resident State's probate exemption amount. This is different in every State. It ranges between $5,000 and $100,000. So check your State laws to see how rich you have to be to have your estate go through probate.

The third alternative is to have nothing in your name at the time of death. The way to do this is to hold assets in joint names with someone else (which creates another problem). Or you can have your assets titled in a revocable living trust. This is becoming by far the most popular method to avoid probate.

Revocable Living Trusts are a little more costly than Wills to set up, but the fee to administer them is negligible --- sometimes even zero. The time it takes to settle a trust can be a little as a few weeks versus the year or two for a will to go through the probate process.

So you can easily see why Living Trusts are the preferred choice over a Will.

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