It seems estate-planning attorneys are often asked to help clients avoid probate. In fact, this is typically one of the first questions people ask in a consultation. There are likely many reasons why people are so focused on probate avoidance, not the least of which is probably a wide misunderstanding of the process. Perhaps family members have told horror stories of oppressive attorney fees or family feuds that destroyed close relationships. Nevertheless, probate is not a dirty word. While probate is a perfectly useful process for disposing of a person’s estate, there are a few points to consider.
A last will and testament does not necessarily avoid probate
Many people mistakenly believe that having a will means not having to go through probate. This is not always the case. While every state has different rules, New York only requires probate if a person dies with more than $30,000 of probate assets. Not every asset is subject to probate. For instance, joint accounts, properties held in joint tenancy, life insurance accounts, 401(k) accounts, generally any asset that has a beneficiary designation, and assets held in trusts are not included in the probate estate. The will simply tells the probate court what the decedent wanted. It also usually waives an executor’s bond requirement and provides a more streamlined method of moving through the process.
Probate can provide certainty regarding debts
Imagine your elderly parent died with tens of thousands in consumer debt. You liquidate all his assets and distribute them equally among your siblings. Everyone is happy and life moves on – for you, not necessarily the creditors. Once they find out their debtor has died, they may come looking for their money. If so, it is common for creditors to open a probate estate and sue the heirs for reimbursement of the debts. After all, the decedent’s debts must be paid before any money is distributed to heirs.
Probate avoids this by providing a clear and strict limitation on collections against the estate. While every state’s rules are different, in New York creditors have 7 months from the date the representative is appointed to make a claim for a debt. The estate must notify known creditors and should also provide a form of public notice to unknown creditors through the local newspaper. If after 7 months, creditors do not file claims, they are forever barred. This provides certainty that once money is distributed to the heirs, there will be no further collections or payments required.
Probate may be required to pursue personal injury actions
Sometimes a person dies due to negligence, and a personal injury attorney will begin the process of filing a lawsuit. Depending on the type of lawsuit, a probate estate may have to be opened in order to get the proper authority to file the lawsuit. This may be the case even if the decedent died with no money at all. Therefore, there are occasions when probate is used not to distribute assets, but rather to gain authority to take some action on behalf of the decedent. Attorneys also sometimes use probate to resolve differences between heirs or gain authority to wind up businesses where there is no direction provided to heirs. Therefore, probate has many functions and can be a necessary part of a person’s final affairs.