Avoiding Probate

Years ago, there was a booth at a local festival with a banner that said: “Ask me how to avoid probate!” At the time, I was elected as a Probate Judge so naturally, I approached the booth and asked: “So, how do I avoid probate?” The salesman (who turned out to be part of a pre-paid legal services business) immediately started his sales pitch about creating trusts and family partnerships to avoid probate. In reality, it wasn't probate he was trying to avoid, it was the IRS. I didn’t interrupt but realized that even this man, whose job it was to sell estate-planning tools, didn’t really understand what “probate” actually is.

Probate is not taxes, it’s not intestacy, it’s not the process by which the government takes your assets. Most simply put, the term “probate” is used to describe all aspects of administering the estate of someone who has passed away. A deceased person can’t own assets. I know . . . shocking, but true. You literally can’t take it with you. Because of this, there must be a process of determining what assets the deceased owned and transferring them to the appropriate person. That process is “probate.” Therefore, at the end of the day there is only one way to avoid “probate” at death – die owning absolutely nothing.

Since most of us will (hopefully) own something after spending the bulk of our life working, the process of probate becomes a necessity. This necessity is handled by the Probate Court. This court is not responsible for collecting taxes nor is it something to be avoided. In fact, the entire purpose of this court is to ensure that a deceased person’s assets are properly managed for the protection of both the creditors and the heirs of the deceased. They do this by providing two functions.

First, the Probate Court handles the legal process of administering the estate. They ensure a Personal Representative (also often called a PR, Executor or Administrator) is properly appointed, they assist this person in understanding the rules and requirements of serving in this capacity, and they manage the files of the deceased to make sure that all interested parties are treated fairly. They do not actually hold the assets, collect taxes or distribute the property; they simply ensure it’s done correctly. The file they maintain serves as the last public record of the affairs of the decedent’s finances, property, and heirs.

The second function performed by this court is the judicial function. Many, if not most, estates never come before the Probate Judge. However, in those estates where a dispute arises, the Probate Court provides the opportunity for the interested parties to be heard and the matter to be resolved. This might occur early in the estate (such as a dispute over who should serve as the Personal Representative), during the administration of the estate (a dispute between a creditor and the estate), or at the end of the estate (an heir upset about the items they did or didn’t receive).

The jurisdiction of the Probate Court (which includes disputes that arise in trusts as well) is beyond the scope of this post, but it’s important to know (as the salesman clearly did not) that no matter how you decide to transfer your assets at your death, it’s likely that “probate” will be involved. Now avoiding the IRS, that’s an entirely different topic!