HOW TO AVOID PROBATE
In 2020, there was an increase in the United States death rate of 15.9%. COVID-19 related deaths amounted to over 375,000, which accounts for most of that increase (11.3%). With all these extra deaths, many senior citizens and even younger clients are concerned about probate. Many people have died, then had their property dragged through court for years before their loved ones could inherit it. I would like to explain what probate is, when it is necessary, and how to avoid it.
Probate is a court proceeding. Probate in Hawaii is necessary when a person dies owning any real estate in his or her name alone. Probate is also required when the total value of all “personal property” owned in his or her name alone is worth more than $100,000. “Personal property” is any asset which is not real estate. If a person dies with only personal property worth less than $100,000, probate is not necessary. Also, if a person dies with real estate worth less than $100,000, the court can handle it as a “small estate,” which is a form of probate. However, the court charges 3% of the value of the estate for handling a small estate. A $100,000 small estate would cost $3,000 in court fees plus costs (such as postage costs and paying the newspaper to print a notice to potential creditors).
The law requires probate for a good reason. If a person dies, the law wants to make sure that the property goes to the people who are supposed to inherit it. The probate law requires that a written notice be sent to the persons named in the will and also to the persons who would have inherited if there had been no will. Each one has the right to see the will, see what was owned, and make sure that the assets are divided the way the will says the assets should be divided.
In a probate, the court appoints someone (usually a spouse or child) as “personal representative.” In the past this person used to be called the “executor.” The personal representative has the power to gather the assets of the estate, pay bills, and distribute the assets according to the will. If there is no will, the assets are distributed according to the “laws of intestacy.” The laws of intestacy spell out who inherits assets when there is no will. If there is any problem during the probate, the court can make sure things are done fairly.
Although probate protects heirs from being cheated, it is still cumbersome. A simple probate takes 8 months to a year or longer to complete. Some probates go on for many years before the assets can be inherited. There are at least 3 reasons why a probate can take a long time. First, if there is real estate which must be sold, and if it is difficult to sell that real estate, then the probate could take longer than usual. Second, the lawyer might be neglecting the case. When a lawyer has several cases keeping him busy, the probate case is often the one that is put off until later. A third reason that probates take long is that the personal representative may be slow in responding to the attorney’s requests for information or documents.
Certain assets do not have to go through probate when a person dies, even if they are worth more than $100,000. First, assets held by 2 or more people as “joint tenants” or “tenants by the entirety” will go to the survivors without probate when one of them dies. This is true for real estate, checking accounts, savings accounts, stocks, etc. If 2 or more people own real estate together, look at the deed. If it has the words “joint tenants” or “tenants by the entirety” it will not have to go through probate until the last owner dies. If the real estate is owned as “tenants in common,” then the share belonging to the person who died has to go through probate. Second, assets which have a named beneficiary do not have to go through probate. These include life insurance, annuities, IRAs, 40l(k) plans, savings bonds and “pay-on-death” savings accounts. In the summer of 2011, it also became possible to name a beneficiary for Hawaii real estate by recording a “revocable transfer on death deed.”
One of the most popular ways to avoid probate is to have a Revocable Living Trust. A Revocable Living Trust allows you to have complete ownership and control over your assets. When you die, your assets go to the people named in your trust, without probate. Instead of ending the trust when you die, it could also continue on after you pass away and protect your assets for the people named in your trust. They can use the trust assets, sell them and re-invest the assets, or take the assets out of the trust. However, as long as the assets stay in the trust, it can protect them from creditors and divorces. A trust is generally a better way to avoid probate than joint tenancy or naming transfer-on-death beneficiaries.
This column is for general information only and is not tax or legal advice. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate planning specialist.