Tuesday, May 02, 2006

Probate Myths Debunked

Category: Probate and Estate Administration

I am really not quite sure why "probate" has gained a reputation as a such a bad word in estate planning. This article from the Florida Bradenton Herald - There are two major advantages of living trusts - is a prime example of bad information about probate being promulgated as fact:

"Also, except for very small estates, probate court proceedings are usually required when a person dies without a will, thus delaying distribution six to 18 months, and often longer.

Another reason to avoid probate court proceedings is state law determines the attorney and administrator fees, ranging from 6 to 22 percent of estate assets. However, these fees are negotiable so don't hesitate to negotiate if you are an estate heir."
These statements are just plain not true, particularly in New Jersey, and I suspect in other states.

First - Probate is the start of the estate administration process. In New Jersey, it generally involves (1) offering the Will to the Surrogate, (2) offering identification to the Surrogate that (a) you are the person named executor, or (b) that if there was no Will, you are the person who has the right to administer the estate under state law (first the surviving spouse, and then the adult children). That's it. The Surrogate then issues you Letters Testamentary (in the case of a Will ) or Letters of Administration (if there is no Will) and off you go empowered to administer the estate. This can all be accomplished in a 1-2 hour meeting at the Surrogates office - it does not take months, or even days.

What does take many months (or even years) is the Estate Administration Process. This is separate from Probate, and needs to be gone through whether you die with a Will, with no Will, or with a Revocable or Living Trust. The Estate Administration Process involves (1) gathering all the assets of the estate, (2) paying any liabilities of the estate, (3) calculating and paying taxes, (4) waiting for the tax calculations to be accepted by the authorities, and (5) finally making a distribution of the assets of the estate.

Second - In New Jersey, it is ILLEGAL for an attorney to charge a legal fee on the basis of a percentage of the estate. The legal fee must be reasonable to the work involved. Even in states where there is a statutory percentage fee, it is true that the executor or administration (not the heirs) can enter into a different percentage with your attorney. However, I don't know of any statutory fee of 22% of the estate, since this is higher than most states estate tax rate.

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At 8/18/2008 3:56 PM, Anonymous Anonymous said...

Thank you so much for making this observation! I am the only child of parents who probably made their will because of scare tactics like the ones in the quoted piece. My Dad died in 1999, and in recent years my Mom's mind has failed. I thought that having a law firm handle the estate distribution was going to mean an easier time, but here I am TEN years later, and the assets are apparently completely frozen in my late father's name, the law firm is apparently kaput, and I keep receiving dividend checks from estate-owned equities, that I have no place to deposit. This is only tolerable for us because my own finances are in fairly good shape - however, my Mother's care would be considerably less of a burden if I could access some of the money her husband invested. I invested in stocks myself for many years but now I've changed my mind - I don't WANT distributing my estate to be a nightmare for MY kids! Law firms should be up-front with clients about what it will REALLY require in order to settle an estate, and whether a will truly will help the heirs/survivors at all.


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