There are actually two types of probate: death probate and disability probate. Most people only associate the term probate to the process associated with your death, but there can be a probate process associated with your disability. If you become disabled, everything in your sole name can be at risk for the probate process. If you have appointed a durable power of attorney in your will that springs into effect upon your disability, you may be protected, but most people have not done this, and even then there are some instances when this does not keep the process from happening. In the disability probate process, you will have to hire an attorney, there may have to be a conservator appointed, and there is the possibility of litigation, especially in the case of blended families.
The probate process that most of us are familiar with is the death probate At a person’s death, any assets in their sole name are frozen and are subject to the probate process, even if there is a will. If you don’t have a will, the state will give you one. There are prescribed rules on how a person’s estate is to be divided if there is no valid will, and it might not be the way you would have wanted it to be divided, so make sure you have a will. One of the reasons for probate is so that any creditors can file a claim with the person’s estate, and the state and federal government are the first in line. The negative aspects most of us associate with probate centers around the issues of time, cost, and the fact that the proceedings become part of the public record.
There are certain things that pass through, or avoid, probate. One of these is assets that are in joint name with rights of survivorship, such as real estate or a joint bank account. Another is life insurance. It usually flows right to the designated beneficiary. But this is one area where it might be advisable to check with a qualified tax professional to see how it affects your estate. Most people consider benefits from a life insurance policy to be tax free, and while it is true that the proceeds are not subject to income tax, that may not be the case with the probate process if it puts you above the exemption level. This is especially true of many couples who purchase term insurance in the one million dollar category. If they were to die at the same time, suddenly their estate has a two million dollar value, and this would be above the exemption level. Some of these issues are too complicated to discuss here, and this is the area where a qualified tax professional can assist you in the area of estate planning and living trusts, which will be discussed more fully in a separate section. A proper estate plan will seek to take advantage of existing laws to save every possible dollar of estate and inheritance tax while making sure you retain control over how your assets pass to whom you want and in the manner you prescribe.
One of the ways to avoid probate is to create a revocable living trust. There is an entire industry devoted to these trusts and you can imagine how many different factors can be associated with them, so we can only discuss them in general terms here. Any discussions concerning trusts are not to be taken as legal advice, so be sure to consult a qualified tax professional. We will only seek to discuss these issues in basic terms with the goal of providing you information that will help you make choices in your estate planning.
