Will or Trust?
Most estate planners warn about the horrors of probate. It’s time-consuming, expensive, and invasive. While the process does have shortcomings, there are benefits to probate too.
The probate system was designed to ensure that a person’s property and accounts are distributed according to state law. Probate is the legal process for distributing a person’s assets after they’ve died. If there is a will, the court may review the will’s validity. If the will names a personal representative to administer the estate, the Court will confirm that person’s eligibility. Thereafter, the Court will publish notice to heirs and potential creditors. Perhaps, most importantly, the court manages disputes between beneficiaries.
Still, due to the drawbacks of probate, many focus their estate planning efforts on avoiding probate completely. They don’t consider the benefits of this system. Here are some of those benefits:
The probate process is reliable. The probate process is time-tested and follows a specific set of procedures. This includes making sure that the personal representative is following the terms of the decedent’s will. As the court requires a complete inventory and appraisal, probate helps insure that the assets are accounted for and distributed properly. Should any of the beneficiaries suspect that the personal representative is not being fair, they have recourse in the Court.
The probate process protects against the claims of creditors. The probate process limits the amount of time that a creditor can file a claim against the estate. Under Maryland Law, the personal representative must give written notice by mail to all known creditors. They also must publish a notice to creditors in a newspaper of general circulation. Generally, creditors have 6 months after the published notice or 60 days after the delivery of the mailed notice to present their claim. Creditors are barred from making a claim if they do not make it within the time limit.
Medical facilities have a history of failing to file a proper claim in a timely fashion. An invoice from a doctor or hospital is not a claim. The Personal Representative is not responsible for paying such invoices unless they are in the form of a claim.
By setting strict time limits for creditors to make claims, beneficiaries can rest assured that by the time they get their distributions, all claims have been settled.
Probate court offers a formal way to settle disagreements between beneficiaries of an estate. Estate administration can be a touchy subject for many families and can lead to a lot of disputes. Unfortunately, not all beneficiaries or family members agree on how an estate should be administered. Arguments may arise as to valuations, fair distributions, or excessive fees.
When these sorts of disagreements arise, having a court overseeing the probate process is helpful. The court acts as a neutral third party and can determine the validity of the will. They can resolve disputes between beneficiaries, although one party is likely to be unhappy with the result.
Many estate planners encourage the creation of trusts to avoid probate. While one goal may be achieved, another may be lost. The creation of a trust means delegating the administration of an estate to one or more people. Often the choice of trustee is made based on factors like age, geography, or personal preference. The critical characteristic for a trustee should be fairness. Accountants can be hired to prepare tax returns and lawyers can be hired to file documents. But a moral and ethical nature and a willingness to follow documents closely are characteristics that will support a smooth estate distribution. In the absence of relatives or friends with the necessary disposition, you might consider relying on the Courts to oversee an estate distribution.
One additional observation. Many financial planners and estate lawyers urge you to create a trust. Yet, the critical issue is what assets will be owned by the trust. For example, any asset with a beneficiary designation will NOT be held in a trust and avoids probate. These include IRAs, 401Ks, Annuities, and Life Insurance. Also, any assets owned jointly with a right of survivorship pass automatically upon death to the survivor. Further, one can add a transfer on death (T.O.D.) designation to bank accounts and other assets to avoid probate. Many of my clients can avoid the expense of a trust because they can rely on the titling of assets to make sure they transfer directly and outright upon their death.
Evan J. Krame
