Q: What is Probate?
A: Probate, simply put, is the process of appointing a surrogate (a substitute) to act on behalf of another who cannot act for themselves. For example, when a person dies owning real estate, unless there is a joint owner, there is no one alive who can sign a deed to sell or transfer that real estate. How is this problem handled? Through a probate. We petition the court for appointment of a personal representative (what used to be called an executor) to act on behalf of the deceased person. The court then appoints that person to act and gives them authority to deal with assets, pay creditors, and distribute the estate. Probates can occur at death, on incapacity, or during minority. A probate on incapacity or due to minority is referred to as a Guardianship and Conservatorship.
Q: What are the major drawbacks of Probate?
A: The Number one drawback of probate is the time involved. A probate at death takes a minimum four months, but usually much longer. For many this time period is painful. Probates can also be quite costly, although under Utah Law, probate is relatively streamlined. These costs can include: (i) Attorneys fees; (ii) Personal Representatives fees; (iii) Court costs; (iv) Legal battles (very uncommon); and (v) a potential for multiple probates – in multiple states. Probate also causes a loss of privacy since all court filings are a matter of public record. However, most of us are unconcerned with this area unless family business information is involved. In a probate there is a greater potential for contests due to the publication process though my experience has been that few read the publication notice. The negative side of publication is that it may expose surviving family members to solicitations. All things considered probate can be emotionally taxing on family members left behind since it generally takes much longer for final resolution to be achieved than through other methods.
The drawbacks listed above cover only probates at death. Probates for incapacity or minority hold, in my opinion, even greater drawbacks.
Q: Does probate have any advantages?
A: Until just a few years ago, probate has had one advantage over other estate planning methods: it shortened the time frame for creditors to make claims against the assets of the estate. Creditors have to file their claims within three months of the publication of the probate notice or be cut off. Under current Utah law, this same advantage is available even without the filing of a probate.
Q: What methods are available for avoiding probate?
A: There are a number of methods available for avoiding probate. These methods include joint ownership of assets, beneficiary designations on certain assets, payable on death designations, lifetime gifting, and trusts. All of these methods when used improperly can create tax, inheritance, and other problems. Of these methods, only the trust holds the potential to avoid all three potential probates. In addition to avoiding probate, a trust can assist in the avoidance of estate taxes, capital gains taxes, provide protection from children’s creditors, avoid disqualification for children from government benefits, and much more. This is why trusts are the primary vehicle used today to do estate planning.
Q: What is a Will and Does it Avoid Probate?
A: A Will is a directive to the probate court as to how property is to be distributed at death, who should be the personal representative to manage the estate, and who should be the guardian of minor children. Wills do not avoid probate! They plan for probate. Wills have to be probated to be given effect. They also provide no protection against incapacity.
Q: What is a Simple Will?
A: Different attorneys will give you different answers to this question. My definition of a “Simple Will” is a will that passes the assets to a named individual or individuals and generally contains no tax planning trust provisions or testamentary trusts. The usual simple will is set up to distribute to the survivor of the couple and then, after the death of the survivor, to the children equally. This is commonly referred to as an “I Love You Will.”
Q: What is a Complex Will?
A: Again, attorneys will differ on this definition. To me a “Complex Will” is a will that contains testamentary trust provisions. A complex will will create a trust at the death of the testator (the person making the will) which may help avoid taxes, provide for a delay in distributions, or other goals that cannot be accomplished with a simple will alone. Most people want a complex will when the differences between the types of wills are sufficiently explained.
Q: What is a Pourover Will?
A: A “Pourover Will” is a will that is used in conjunction with a living trust. It acts as a safety net to ensure that the testator’s wishes as set forth in the trust are carried out, even if the assets are not placed in the trust during the testator’s life. Ideally a pourover will sits dormant and is never used.
Q: What is a Trust?
A: A trust is a legal entity established to hold and manage property. I like to think of it like a grocery sack in which assets can be placed and management of those assets transferred to another person (a trustee). A trust has its own separate existence apart from the grantor or creator of the trust. Trusts can be established during one’s lifetime (a “living” trust) or they can be established at death through a will (a “testamentary” trust). Living trusts can be either revocable (can be altered) or irrevocable (cannot be altered).