Probate is the process by which a deceased person’s “stuff” is passed to their heirs or the people named in their will, whether they have a will or not. The need for probate only arises if something is owned by someone alone in their name at their death. It usually does not apply to jointly held property, assets held in trusts, or assets that typically come with a named beneficiary, such as life insurance, annuities, or retirement accounts (401 (k) s, IRAs, 403 (b) s). Probate is basically your wishes being supervised by the probate court. Creditors usually have a year to show up and make a claim, so the process can take up to a year, but in some cases, distributions from the estate can be made sooner.
As COVID-19 has slowed the probate process, we decided to do a deep dive into the pros and cons of probate versus creating a trust to help you determine which option is best for you.
Probate Process in Massachusetts
Each state handles probate a little differently, but there are some overall similarities to the process:
1. Filing the will and petition: For the record, there is no Hollywood-type reading of the will. Technically, you could still do it, but our firm does not. What we do have to do is send a probate petition and the original will (if there is one) to the Probate Court to start the process of appointing someone as a Personal Representative (what used to be called the Executor). Just being named in the will does not automatically get you the job. The court needs to essentially approve or sign off on it.
2. Organizing and collecting all the assets. You must chase down everything the person who passed away owned, including personal items, vehicles, and liquid assets (cash or securities). You may have to file a list of assets with the Probate Court, or in some cases, just the beneficiaries of the estate. Ideally, everything is consolidated into a single newly established checking account for the estate, and you or your attorney will need to obtain a taxpayer identification number (also called a TIN or EIN) from the IRS for the bank account.
3. Paying bills. Bills are paid out of the estate checking account you set up to collect all the assets of the estate. Put the bills aside as they come in, and while you are waiting for your appointment as Personal Representative, do not panic. Let creditors know you are waiting to be appointed and that you will square up with them once you hear back from the Probate Court. You are NOT responsible as the Personal Representative for the bills; you are responsible only for using the deceased person's assets to settle their affairs. When you have collected all the assets, you can then start paying them out. If there are more bills than assets, you may have to file a notice with the court stating that the estate is insolvent.
4. Filing taxes. In Massachusetts, an estate tax return generally must be filed if the estate exceeds $1,000,000. The federal estate tax threshold is significantly higher and, in many cases, will not be required. The return must be filed within nine months of the date of death. If you need to file an estate tax return, it is best to hire an experienced CPA or tax attorney, as the filing can be somewhat complicated and best left to the professionals. You may also have to file a final income tax return for the decedent and for the estate if the estate account or the estate assets earn any money.
5. Distributing the estate to beneficiaries. Usually, we suggest not paying out any of the estate assets until about a year after someone's death. That is how long the creditors have to show up and make a claim, and once you pay the assets out, it’s next to impossible to get them back (if need be). In some cases, it may make sense to do a partial distribution if you're pretty sure there are not any creditors left to make a claim, and that you have held onto enough to cover any unforeseen expenses. Then, when everything is paid, you can make one more small final distribution with the remaining assets.
6. Taking care of the final account. In some states, the Personal Representative must file an accounting with the Probate Court listing any income to the estate since the date of death, and all expenses and estate distributions. In other cases, the beneficiaries just need be provided the details of how the assets were administered, and the court does not require an accounting unless one of the beneficiaries requests one. After the accounting has been approved by the court, the assets can then be distributed to the beneficiaries of the estate.
Has COVID-19 Impacted the Probate Process?
While there are some pros to probate, the process has been slowed down significantly due to the COVID-19 pandemic. The biggest pro is that the court will supervise the distribution of your estate to ensure it goes exactly as you planned. For people who have concerns about who will receive your assets and how they will be distributed, this court supervision provides peace of mind. Does probate cost more money? Yes. Does it take more time than using a trust to accomplish the same thing more quickly, efficiently, privately, and with less cost? Yes.
Why You May Want to Avoid Probate During COVID-19
Our preference is to avoid probate if possible. The process can drag on, as COVID-19 has slowed things, and selling real estate out of an estate (with or without a will) can add to the challenges and costs of administering the estate. However, if you do wish to pursue this option, our firm can assist you through the process.
Reasons to Set Up a Trust
Setting up a trust initially costs more money, and you do need to make sure you fund it or else you end up right back in Probate Court, but it also has its benefits. If you have minor children, real estate, and some liquid assets, a trust generally makes more sense than just a will. Even an estate with some assets left out of a trust can be easier to administer than an estate without a trust.
If you need assistance with the probate process or would like to create a trust, contact our
office online or via (508) 858-5324 to schedule a consultation with an experienced estate planning attorney from our firm.
