If you fail to establish a formal estate plan, your assets may end up in probate. Even if you have a will, your assist typically will have to be probated. The questions becomes, what is probate?
Probate is a legal proceeding through which the court oversees the payment of your debts and the distribution of your assets. If you have a will that provides how you want your assets distributed, that distribution cannot occur until the probate court enters an appropriate order.
For instance, simply because your will may direct that your house be given to your favorite charity, that charity will not be able to sell the house until the deed is transferred to its name. That transfer does not occur until the court approves an order. This takes time and money. The problems with probate include:
• Time – Probate proceedings take time, a minimum of several months, but often years. Your personal representative (executor) may lack the funds to pay the mortgage or other obligations, thus forcing a sale of your assets far below market value. Your beneficiaries thus may not receive the full amount of the gift you intended. At a minimum, they will have to wait for their distribution, possibly for several years.
• Privacy – A probate is a public proceeding and as such, makes your personal financial situation available to anyone to review. Your family will lack the ability to keep your financial information private. Not only will you lose privacy, but the disclosure of your will may increase the likelihood that your wishes will be challenged by someone you intentionally left out of your estate plan.
• Expense – One of the biggest pitfalls of probate is the expense. As a practical matter, you can assume that the longer the probate proceeding lasts, the more the attorneys will charge. Attorney’s fees often cut significantly into the assets your heirs otherwise would receive. The problem is worse if you own property in another state at the time of your death. Your estate may end up having to pay for multiple probates.