February, 2006

Estate Probate I

Purpose of Probate

Will someone need to probate your estate after you die?  They will if you own anything and they want it.  The purpose of probate is to officially transfer your assets to whoever they are supposed to go to.  The 2 questions are: A) What are your assets? And B) Who are they supposed to go to?

A)What are your assets?

Or more specifically: What assets are included in your “Probate Estate?”  The answer is: Whatever you owned in our own name.  Real estate, bank accounts, automobiles, household furniture, the right to collect on a promissory note, etc.  Anything that could be considered an asset.  Here it is important to determine the form of ownership.  “How” was it owned? 

Let’s say you died with the following assets:

1.a house you and your spouse owned worth $300,000;

2.a joint checking account with your spouse with $5,000 in it;

3.a $20,000 savings account in your own name;

4.an automobile in your own name,

5.miscellaneous personal property (jewelry, clothes, knick knacks),

6.a $100,000 life insurance policy; and

7.a 401(k) plan through your former employer.

For the purposes of probate, we really only need to be concerned about items 3, 4 & 5.  The rest of the assets probably escape the probate process because Danny didn’t really “own” them at the time of his death.  Items 1 and 2 were owned jointly with his wife.  This means the moment Danny died, his wife owned the house and checking account outright and they are not included in the probate process.  Items 6 and 7 also escape probate because they have named beneficiaries on the policies.  Danny had a contract with the life insurance and pension plan companies to hold this money in trust, payable to whoever he named as Beneficiaries upon his death.  Therefore, for the purpose of probate, he didn’t own this money when he died.

B)Who are they supposed to go to?

If you had a Last Will & Testament, then that document will tell them who to give it to.  If you didn’t have a will, then the State will tell them who to give it to.  (See last month’s article on Intestate Estates.)  But before they start cutting checks to the heirs, they have to first pay off your debts.  This includes everything from your credit cards to your funeral expenses.  If you died owing more than he owned?  They will declare your estate insolvent and start paying off the debts by priority.  And you can bet they put the lawyer’s fees on the top of that priority list.