Helping to Navigate Your Family's Future

Inheritance isn’t automatic: The probate process can take almost two years
and cost thousands of dollars;  Most people have the wrong idea about probate,
and don’t fear it enough to do something to avoid it

The typical probate process to settle a will or the estate of somebody who dies without one takes 20 months, according to a new survey on probate from Trust & Will, an online estate-planning service. It costs 3%-7% of the size of the estate, which could run anywhere from a couple hundred dollars to tens of thousands for the 65% of people who would hire an attorney to help them.

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Most people have only a cursory knowledge of probate — that it’s the legal procedure heirs have to go through to file a will with their county court, or settle an estate in the absence of a will. In layman’s terms, it’s the mess you leave behind.

Beyond that basic definition, Trust & Will’s survey shows that most people know very little about what the process entails.  This is understandable, of course, because most people only encounter probate when they’re responsible for dealing with the death of a loved one.

Here’s some of what they get wrong:

Some 35% believe inheritance is automatic

Nothing is automatic or easy about inheritance.  The fastest way to pass along assets is through beneficiary designations, but those have to be deliberately made by a person — and routinely updated — to be valid.  After a person dies, the heirs have to submit paperwork, usually including a death certificate, to claim funds, which can take a few weeks, at least.

They vastly underestimate how much time probate takes

Only 2% of respondents got the timeline right — which is an average of 20 months, according to Trust & Will’s internal data analysis.  Some 37% had no idea, and 33% guessed various intervals less than six months.  Even in states where probate goes quickly, that speed is nearly impossible.  The only way to get through the process quickly is in states that have some sort of small-estate probate procedure, but that usually would only involve limited amounts of cash in stray accounts, said Trust & Will’s product counsel Mitch Mitchell, who was also a probate attorney for many years.

They don’t know how much it will cost

The cost of probate depends on the size of the estate in question, and it also varies by state.  That said, you can estimate the general cost by just thinking about the typical lawyer fees in your area and how long it might take for the complexity of the person’s assets.  Trust & Will gives the example of a $750,000 estate billed at 3%, which would be $22,500.  That would shock the 10% of survey respondents who guessed it cost less than $1,000.

What you can do to avoid probate

If you want to spare your family the hassle and cost of going through probate after you die, the best thing to do is simplify your estate and reduce what has to go through probate.  It’s possible to shield almost all of your assets from this process.  You can’t always avoid probate completely, and you often need it even if the deceased had a trust, but you can take care of nearly everything ahead of time.

The first place to start is beneficiary designations on all financial accounts — and, really, do all of them.  Even just one left blank can send you to probate.

We often look at celebrities as cautionary tales of estate planning, so look at the way [the late actor] Matthew Perry handled his affairs.  Most of his estate transfers happened seamlessly through trusts, which made the details private.  And then one bank account with $1.5 million ended up without beneficiaries.  So his family had to go to probate to file his “pour-over will” — which takes care of anything not covered in the trust — which is how the press was able to find out details about it, because another knock against probate is that the filings are public.

“Matthew Perry is a great example, because it’s like an illustration of an iceberg,” said Mitchell.  “What you can see on top is the stuff going through probate, but there’s so much more below the surface that you can’t see.”

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For real property, like a house, you may want to consider either a trust or a transfer-on-death kind of deed, if your state allows this.  It may seem like too much time and expense to do this now, but what you’re trying to do is save effort on the other end.

“You have to do the work now because it’ll be worse later if you don’t,” said Mitchell.  “With a will, you’re doing only some of the work now, but you’re really putting off a lot of it on your family” (emphasis added).

Costs vary for creating a trust, but a ballpark estimate for a standard revocable trust for one property is around $4,000 or more.  Transfer-on-death deeds, where you name a beneficiary just like you would on life insurance or a bank account, should cost significantly less.

The goal of either is to pass along real property outside of probate because it takes much less time.  For a trust, it’s immediately upon death.  For a beneficiary transfer, it could be months or even years].  Imagine the difference if your heirs had to cover the carrying costs of a property for 20 months before they could legally sell it.  It might eat up all of the prospective inheritance.

“Real property comes with obligations,” said Mitchell.  “If there’s still a mortgage, you have to make sure it’s paid up.  To make sure the house is properly insured, you will have to obtain a new type of insurance, especially if the house is unoccupied.  Those things are more complicated and will take more time than a cash account.”

Credit:  Beth Pinsker, CFP, MarketWatch 17 July 2024