What is probate?
Probate is the legal process of distributing your assets according to your wishes, which includes determining the validity of your will, gathering your assets, paying your debts and taxes and then distributing the remaining assets according to your last will. To get the process started Your Personal Representative, the Executor, will submit your will to probate court to have it validated. The main advantage of probate is that the probate court is supervising the entire proceedings, and the probate laws are being followed.
- Probate
What Steps are involved in the Probate Process?
Probate process can be a complicated, lengthy and confusing process, but here is the general process; the probate process involves two steps:
- Pays debts you owe, including taxes
- Transfers assets to your beneficiaries, as per your will
The probate court oversees the probate process to make sure everything goes according to the probate laws and your will. Because probate courts are not federal courts, the processes they follow will vary. Despite their differences, these courts all pretty much follow the same basic processes:
- Swearing in your Executor
- Notifying heirs, creditors, and the public that you are, indeed, dead
- Inventorying your property
- Distributing your estate
Cost of Probate
There can be substantial cost involved in probating an estate, so it makes sense to avoid or limit full probate where possible legally [we will discuss legal means to do this in the next article]. Although probate costs will vary from province to province and state to state, they average range is between 0.5% and 2% of your estate. But that is not all, there are more costs associated with distributing your assets, some other costs are executor and attorney fees, executor fees can range up to 4%. Then there are always taxes your estate will have to pay before transferring assets.
How Long Does Probate Take?
The length of probate will depend on the complexity and seize of your estate, the larger and complicated your estate is the longer it will take to settle. It also will also depend on if you have a valid legal will and whether it will be contested by others or not. On average probate process can takes between 1-2 years if there are no complications, however in some cases it goes on for decades. To speed up the process and avoid complications it is highly recommended to have an updated and valid will.
If you need more information regarding probate and estate planning, please consult a qualified estate lawyer and/estate planner.
In the next article we will discuss ways to reduce your probate costs and leave more for your beneficiaries (legally).
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Article by Ray
Ray is an ex-financial adviser and the founder of Financial Highway. Currently working in the financial industry and working towards completing his Chartered Financial Analyst, CFA, designation.
Ray has written 271 articles.
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{ 8 comments… read them below or add one }
So are ALL of your debts paid out of your estate prior to the distribution of your money? What happens if the value of your estate is less than what you owe to creditors? This may not be the place to ask those questions but I have often wondered where your debt goes when you die.
All debts go to heaven…ooops sorry that’s dogs. As far as debts, I believe if it is unsecured – i.e credit cards, school loans they disappear. Secured debt (i.e. mortgages, car loans) go with the asset to the person receiving that asset. But hey, I’m not a lawyer! =)
@ Kyle thats a good question! Jason pretty much answered it. Debts need to be paid off before asset can be transferred. Creditors file a claim on your assets and the court will oversee that they are paid. There are some assets that skip the probate process and creditors do not have a claim on such as Segregated funds and insurance policies since they have a named beneficiary. These will not be included in your estate and creditor’s can not file a claim on (even in bankruptcy)
Ray, just to clarify your last sentence…I believe that life insurance proceeds ARE included in your estate for tax purposes if you are the owner of the policy, but they skip the probate process if there is a named benny. A sizeable life policy can create an estate tax burden that some often overlook.
@ Jason, no life insurance proceeds (as well as Critical Illness insurance proceeds) are tax free and bypass the estate. Often life insurance is used to reduce the tax burden on family members when transferring assets.
Ray, that’s correct they are income tax free. I should clarify – I was referring to the Federal Estate Tax Exemption. The way I understand it is that the proceeds are included in your estate, which means that it will make your estate larger and could potentially push you over the $3.5m exemption for Federal Estate tax purposes (if you have a large policy and you are the owner).
If I leave my entire estate to my spouse, does the estate need to be probated?
If you have a will than your will most likely will have to be probated. unless all your assets are owned jointly your spouse may not always have access to them without a probated will.
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