Probate is the legal process that validates your last will & testament (“Will”) and oversees the transfer of assets from your estate to your beneficiaries after your death. Probate entails a court-supervised process of locating and determining the value of the assets owned in the individual name of a deceased person (referred to as a “decedent”) paying the decedent’s final bills and/or estate taxes (if any), and then distributing what’s left of the decedent’s assets to his or her heirs.
Probate takes place in the probate court of the city or county where the legal residence of the deceased was located. Wills must go through probate in order to be legally validated, a process that can take between six and twelve months. Not all assets go through probate, and the fewer that do, the better.
Examples of some assets that bypass the probate process and go immediately to the beneficiaries are assets that have named beneficiaries (such as life insurance policies and 401(k) accounts), assets you own jointly with another person (such as a house you own with your spouse) and assets held in a trust.
PART I – HOW TO PROBATE AN ESTATE
Each state has a specific set of laws that will determine the particular probate process to be followed in that state. While these laws will vary from state to state, in general they’ll require the following steps to settle an estate:
- Appointing a personal representative, also called an Executor or Administrator, to oversee the distribution of the estate’s assets;
- Locating and protecting all of the decedent’s assets;
- Figuring out the date of death values for all of the decedent’s assets through account statements and appraisals;
- Locating all of the decedent’s creditors and then notifying them of the decedent’s death;
- Paying all of the decedent’s final bills;
- Filing the decedent’s final income tax return and any estate income tax returns if the estate earns any income during the administration;
- Determining if any estate taxes will be due, both at the state and federal levels;
- Paying any estate taxes (usually within nine months of the decedent’s date of death), and, if necessary, raising the cash necessary to pay those taxes ; and
- Distributing the balance of what’s left of the decedent’s assets (after all of the bills and taxes have been paid) to the beneficiaries named in the decedent’s Will (if the decedent had one), or to the decedent’s heirs at law (if the decedent didn’t have a Will).
PART II- WHEN IS PROBATE NECESSARY
A frequent question asked is “When is probate really necessary?” As with many estate planning questions, the answer depends upon the specific laws of the state where you live at the time of your death, as well as the laws of any other state where you own real estate. In general, if the decedent owned any property in his or her sole name (without any other owners or a payable on death or similar type of designation), then in most cases, the property will need to be probated in order to get it out of the decedent’s name and into the names of the decedent’s beneficiaries.
PART III- NON PROBATE ASSETS & THEIR GROSS ESTATE VALUE
Non probate assets are simply assets that won’t need to be probated after you die. Here is a list of such types of assets:
- Assets you own jointly with your spouse or with others with rights of survivorship (JTWROS).
- Assets you own jointly with your spouse as tenants by the entirety (TBE).
- Assets owned by your Revocable Living Trust.
- Assets in which you retain a life estate and the remainder passes to a non-charitable beneficiary other than yourself.
- Assets owned by you and payable to a designated beneficiary, including:
- Payable on death (POD) accounts, transfer on death (TOD) accounts, in trust for (ITF) accounts and Totten trusts.
- Life insurance policies.
- Retirement accounts, including IRAs, 401(k)s and annuities.
- Health savings accounts (HSAs) or medical savings accounts (MSAs).
Note that if all of the designated beneficiaries of any of the assets listed in (5) above predecease the account owner, the account will need to be probated.
Non probate assets will be included in the value of your gross estate which is used to determine your estate tax liability. The following list will help guide you with the the dollar value on the non-probate asset that should be included in your gross estate for estate tax purposes:
- If the asset is titled in your sole name without any other owners or has a POD, TOD or ITF designation, then 100% of the value will be included in your taxable estate.
- If you own a life estate in the asset and the remainder passes to a non-charitable beneficiary other than yourself, then 100% of the value will be included in your taxable estate.
- If the asset is titled as JTWROS with your spouse or as TBE, then only 50% of the value will be included in your taxable estate.
- If the asset is titled as JTWROS with someone other than your spouse, then 100% of the value will be included in your taxable estate unless it can be proven that the other owner(s) actually made contributions to the account or toward the purchase of the property.
- If the asset is titled in the sole name of your Revocable Living Trust, then 100% of the value will be included in your taxable estate, but if the asset is titled in the name of your Revocable Living Trust as a tenant in common, then only the proportionate share owned by your trust will be included in your taxable estate.
- The entire death benefit of life insurance policies that you own on your own life at the time of your death will be included in your taxable estate, but only the cash value of life insurance policies that you own on someone else’s life will be included.
- Finally, 100% of the value of your retirement accounts, including IRAs, 401(k)s, and annuities will be included in your taxable estate.
As was mentioned in previous articles, many people spend more time planning their vacations than planning their estates. This is probably because the vacation will happen sooner and because it’s much more fun to plan. However, estate planning is much more important but requires more time and effort. Without a comprehensive estate plan, a significant part of the work you’ve done throughout your life, both at your job and with your investments, can be lost or given to unintended beneficiaries.
The attorneys in the Trust & Estates Practice Group at Yedid & Zeitoune have a combined 20 years of legal experience and are ready to assist you with all your estate planning needs.
Isaac Yedid, Esq. and Raymond Zeitoune, Esq.
Yedid & Zeitoune, PLLC
1172 Coney Island Avenue Brooklyn, New York 11230
Phone: (347) 461-9800 Fax: (718) 421-1695 Email: [email protected]
NYC Office – By Appointment Only:
152 Madison Avenue, Suite 1105 New York, New York 10016