Costly Probate Mistakes
Everyone makes mistakes — and that’s not necessarily a bad thing. Mistakes give us a chance to think about the choices we’ve made and, hopefully, learn from them. But when it comes to probate and estate planning, it’s hard to cast mistakes in such a positive light.
You won’t be around to gain valuable insight from poor decisions in estate planning. It’s your family and loved ones who will have to face the consequences of your mistakes.
But worry not. The most common probate mistakes are simply a result of inexperience and poor planning. With a little research and preparation, you can easily avoid common probate mistakes that could end up costing your inheritors a great deal of time, money and hassle.
Here are some common probate mistakes you should be sure to avoid.
Organizing Your Estate Poorly
Never underestimate the power of good estate organization. At the very least, it can save your family some headaches when it comes time for probate. At best, it will ensure that your property goes to the people you care about rather than becoming lost and turned over to the state government.
Some people have a habit of storing their financial records in their heads instead of a safe, easily accessible place, which can make things quite stressful for whoever has to gather assets for probate. To make sure probate of your estate goes smoothly, thorough organization is key.
First and foremost, write a will and make sure it’s valid according to your state’s probate laws. If you don’t leave a valid will, the state decides who will inherit your property. You should make several copies of your will and store them in secure places, such as a safe deposit box, file cabinet or a safe. Leave the original copy in a fireproof safe or with your estate lawyer, and be sure to tell the people closest to you where they can find other copies.
Wherever you decide to store your will, you should keep a detailed log of your debts and assets along with it. You should leave important information about how to locate assets, which may include:
Bank accounts, mutual funds and money market accounts
Living trusts, titles, deeds and other important documents
Stocks and bonds
Retirement accounts and pensions
Items hidden away in safes, safe deposit boxes or hidden locations
It may take some time to arrange all of this information, but it will make probate that much easier for your family and loved ones when you’re gone. After all, the less time they spend tracking down your property and creditors, the sooner they can receive their inheritance and be done with probate.
Ignoring Small Estate Procedures
Every state offers simplified probate shortcuts for small estates. These shortcuts can save you money while speeding up the probate process, but only if you pursue them. Depending on your location, you may qualify for probate with less court supervision or no court sessions at all. Many people expecting to leave a significant amount of assets assume they’re ineligible for small estate procedures, but that isn’t always true.
State laws define what constitutes a small estate. If the total value of the assets you leave behind doesn’t exceed the predetermined cutoff, you’re in the clear. In some cases, estates worth hundreds of thousands of dollars will still qualify for small estate shortcuts.
This is where knowing your state’s probate laws will come in handy. In many cases, when adding up your property’s value, the state will exclude several types of assets that may constitute a significant portion of your estate. Additionally, property transferred outside of probate won’t count toward your limit on property value. There’s a good chance that with some early planning, you can save your loved ones time and money when it comes time for probate. Keep in mind, though, that by the time you pass away there’s a chance state laws will change.
Hiring an Inexperienced Attorney
When choosing an attorney to assist you with estate planning or probate court proceedings, experience matters. It could cost you and your loved ones a significant amount of time and money if you aren’t represented by a knowledgeable probate attorney with a reputable track record.
Unless you have a multi-million dollar estate, probate won’t be a particularly difficult process for your attorney to manage. For the most part, it involves little more than routine paperwork. To take advantage of this, many attorneys with limited probate experience will accept cases and pass them on to their legal assistants — which probably isn’t in your best interest.
When interviewing potential lawyers, be sure to ask them how many probate cases they have handled. With experience comes knowledge and only experienced attorneys will know the probate shortcuts that can be applied to your case to make the process cheaper, faster and easier.
You’ll also want to be sure to hire a lawyer that makes you feel comfortable. Even if your lawyer is experienced, you should make sure he or she can communicate clearly and explain the probate process in terms you can easily understand.
Benefitting Creditors by Avoiding Probate
There are many ways to avoid probate to save your beneficiaries time, money and hassle after your death — but probate avoidance isn’t necessarily the best option for everyone. While probate certainly has its downsides, choosing to opt out can make you ineligible for some worthwhile benefits.
One noteworthy advantage of probate is that it limits how long creditors have to file claims against your estate. Depending on your location, creditors typically have a few months to request payment for your outstanding debts. Once the deadline passes, your inheritors can rest assured knowing that creditors no longer have the right to file additional claims.
Even with this favorable deadline for creditors, many people still choose to avoid probate. The ability to transfer property to inheritors immediately after the decedent’s death may be inviting, but there’s also a serious disadvantage to probate avoidance: Transferring property outside of probate does not always mean it will be protected from creditor claims in the future.
If your estate ends up having more debts than assets, the probate judge can order the personal representative to sell assets to pay off creditors. But if the probated assets can’t cover the estate’s debts, some types of non-probate assets can be claimed by creditors. In theory, a creditor could track down the new owner of your non-probate property up to a year or two later to collect the debt.
Each state has its own laws that describe creditors’ rights, so you may want to speak with a professional who is familiar with your state’s probate laws. An experienced probate attorney can provide valuable estate planning advice and help you choose a plan that works best for your unique situation.