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What is probateand how does it work?

Christine Fahlund, CPF, a senior financial planner with T. Rowe Price
Christine Fahlund, CPF®,
a senior financial planner with
T. Rowe Price

It's important to consider the role probate can or will play in your overall estate plan.

Understanding probate
Probate is the court-supervised process by which all or certain of your assets are distributed as you have outlined in your will or according to the laws of your state of legal residence if you do not have a will. Assets properly titled or with designated beneficiaries can bypass the probate process. However, there may be instances where probate has its advantages. For example, probate has the benefit of court supervision and dispute resolution, as well as rules concerning the final settlement of any creditors' claims on your estate.

At the same time, the probate fees can be expensive and the process time-consuming, depending on your state of residence. Generally, the more complicated the estate, the longer the process may take—usually months, but possibly years. This may be an important consideration if your heirs need access to their inherited assets as soon as possible during the estate settlement process. And, in some cases, probate may compromise your privacy. A will is a matter of public record, allowing anyone to read its terms and potentially learn other details about your family and its finances, depending on what information it includes.

What goes through probate?
Certain assets will be subject to probate, including solely owned assets with no instructions (such as transfer on death, or TOD) on how they should be handled at the time of your death. Accounts without beneficiary designations—or instances when the beneficiary designation is your estate—are also subject to the process.

Assets that aren't subject to probate include:

  • Jointly owned assets with rights of survivorship, such as real property or joint investment accounts, if the joint owner survives you.

  • Solely owned assets with beneficiary designations, such as IRAs, 401(k) accounts, and taxable accounts with TOD instructions if the beneficiary survives you.

  • Assets held in a trust at the time of your death. The trustee will pass the assets privately, according to your wishes, to the beneficiaries you've named in the trust agreement.

Taking action
The following steps can help ensure that the probate process works in concert with your overall estate plan.

Step 1. Identify your assets. Start by documenting your assets, including real estate and investment accounts. Then determine which assets already have designated beneficiaries or are titled to pass directly to a joint owner. Without such designations, your assets may be subject to the probate process. Keep in mind that if these individuals do not survive you, the assets will be subject to probate.

Step 2. Review your will or trust agreement. Look closely at these documents to see how your solely owned assets are to be distributed and compare the results with the information you listed during the previous step. Does your will or trust agreement match how you want those assets to be distributed and subsequently managed? Remember that if you have a beneficiary listed on your accounts, and this individual survives you, the beneficiary designation will supersede what may be noted in your will. Meet with an estate planning attorney for additional details.

Step 3. Plan an annual checkup. Review your estate planning documents—including such items as your will, trusts, and beneficiary designations—once a year, or in the event of life changes such as the birth of a new child or a divorce, to ensure that your assets will pass to your heirs according to your wishes.

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