Whenever a person dies, his or her estate, is required to undergo the probate process. This is the procedure of accounting for the decedent’s assets. In addition, the probate process will use the estate’s assets to pay off any debts and tax bills owed by the decedent. The remaining leftover assets will then be distributed to the heirs.
Proving legitimacy of a will or trust
The first objective of the probate process is to prove the deceased’s will, or trust, is legitimate. The court will allow those who have a claim against the estate as well as those who claim the trust or will is not legally sound, to have a venue in which to make their arguments. The probate process will usually happen in the court located in the state and county where the decedent lived at the time of his or her passing.
Intestacy
In many cases, the deceased fails to put an estate plan in place and there is no valid will or trust left behind to guide the distribution of the estate’s assets. This situation is known as “intestacy” and means the probate process will distribute assets based upon the state’s default laws currently in place. The state laws will determine which heir(s) will receive what proportion of the estate’s leftover assets after creditors have been paid.
Of course, leaving the distribution of your estate’s assets to the courts is not ideal since you basically have no say as to what happens. Without a will or a trust, the outcome of the probate court process can be somewhat unpredictable. Due to a lack of direction on what to do with your estate’s assets, your family and loved ones may end up in a protracted legal battle over your estate. This may end up costing your loved ones legal costs and court fees.
Paying debts
Before any of the assets are distributed to beneficiaries, the probate process usually requires creditors be given a chance to lay claim to any amounts owed to them. This commonly includes credit card bills, funeral costs, unpaid utilities bills and other similar debts.
Paying tax bills
Any taxes owed to the local, state, or federal government will generally be paid prior to distributing assets to your heirs. This may entail the filing of your final tax return or possibly the tax return for the prior year if it was not filed before passing away. The estate may be required to pay income tax if it ends up receiving income during the probate process. There are also estate and inheritance taxes to consider as well.
Save your heirs money and hassle
Not only does passing away without a comprehensive estate plan cost your intended beneficiaries money, but it can also be a hassle to deal with a contested probate process. Therefore, it is best to develop an effective estate plan as soon as possible if you have not done so already. Additionally, your estate plan should be updated regularly to fit changing personal circumstances.
Any opinions are those of Independent Financial Services and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.