Some people eat, sleep and chew gum, I do genealogy and write...

Tuesday, December 16, 2014

The Ins and Outs of Probate for Genealogists - Part Four - What is Probate?

Probate is a court supervised procedure for the orderly transfer of property after a person's death. At the bottom of this post, you will find links to the previous posts on this process. In the United States, the term "probate" has a decidedly negative connotation. This has occurred primarily from two factors; the fact that some attorneys have charged a fixed percentage of an estate's value for shepherding a probate case through court and the promotional efforts of those individuals who purport to provide "estate planning."

The one event in the history of probate in the United States that could be considered the beginning of modern probate practice was the publication in 1966 of a book by Norman F. Dacey entitled, "How to avoid probate." This national bestseller went through multiple editions and is still popular. The idea was that probate per se was bad and that avoiding probate per se was beneficial. It is true, that some of the fees charged by attorneys for being involved in the probate practice were exorbitant and bore no relation to the amount of work done and that there were some rather simple things that could be done to avoid those costs. Over time, in some states, most of the original issues raised by the book have become less of an issue due to dramatic changes in the probate laws, such as the adoption of the Uniform Probate Code that provided changed the way attorneys were paid for their work.

Over the years, I have found that the main factor driving huge attorney's fees in a probate case has been fighting among the heirs. The vast majority of the cases I handled were routine and the fees were minimal. In fact, if the deceased had spent the money for the estate planning advocated by those promoting an avoidance of probate, the costs would have been many times the actual probate fees. Today's cost for a probate avoidance, estate planning package can run into the thousands of dollars and there are a host of estate planning practitioners who fail to tell their clients the truth about the real costs involved in a probate action, assuming one is needed at all.

That said, the actual need for and the complexity of a probate action is determined entirely by the size and value of an estate and the ability of the heirs to agree among themselves. The need for a way to transfer property upon the death of the owner has existed since property ownership existed. The current procedures in the United States go back to English Common Law and the Court system that developed starting in the Middle Ages in England and other countries. The driving force for creating probate procedures is the existence of "titled property," that is property ownership that is evidenced by some kind of government issued title document created at the time the property is acquired. In our modern age, real estate and automobiles are the most common types of titled property.

As I mentioned, the size or value of the estate is a crucial factor in the need for either estate planning or for probate. The basic idea involved in the so-called estate planning schemes are a way to transfer all of a person's property to a trust or other entity before death. The reason for this is that in some cases, when an estate reaches a certain value, the government imposes transfer taxes, usually called "estate taxes" on the value of the money and other property transferred to the heirs. The idea of estate planning is to minimize the amount of these taxes and to provide cash to pay the taxes if needed. In the United States presently, there is a "standard estate tax deduction" that changes from year to year. According to the Internal Revenue Service (IRS) in 2015, the standard deduction is $5,430,000. See "In 2015, Various Tax Benefits Increase Due to Inflation Adjustments" from the IRS. You can probably guess that most of us will not have any estate tax liability. You should also realize that the amount of the deduction can change during the year depending on Federal legislation.

The issue with titled property is that specific people "own" the property and if an owner dies, then there is legally no one to sign over the deed or title to the heirs (those who by law or trust or will are supposed to receive the property). A will comes into this procedure as the document containing the wishes of the deceased as to which heirs are to receive the property. The probate action considers the interests of the deceased owner, provides for the payment of debts, provides for the payment of any taxes or fees owed by the deceased, decides who gets the residue of the property in the estate and then orders the executor or personal representative to distribute the property and legally sign any necessary titles or deeds.

If a person dies with a will, they are said to have died testate. If there is no will discovered, then the person is said to have died intestate (i.e. without a will). In the case of a person who dies intestate (without a will) most states in the United States now provide a legal structure that essentially writes a will for the deceased person in a very simple way. This is called an intestate probate procedure. In some cases, if no will was found and no heirs located, the property of the deceased person "escheated to the state." This usually only occurred if there was no subsequent legal owner of the property, i.e. no heirs, and there was actual property that the state wanted to acquire.

One of the "boogymen" raised by the estate planning community is the specter of having the estate escheated to the government. In my experience, this was very rare. However, I had many clients whose first fear upon discussing probate was that all their money and property would go to the state. This is apparently still a scare tactic used by those estate planners in the United States who invite older people to a "free lunch or dinner" to discuss their need for estate planning.

Where do genealogists come into this picture? Well, they all die so their estates may need to be probated, but beyond this The entire probate action, including a will, if one is in existence, provide a rich source of information about an individual and his or her family. In the next post in this series, I will discuss some standard probate procedures. Stay tuned.

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