The other day a woman told me (Richard) that her estate was not going to be subject to probate because everything she owned was worth less than $1 million. This pronouncement demonstrated a common confusion between probate and estate taxes. Probate and estate taxes are not the same thing!
Most people today are somewhat aware that the federal estate tax law has changed dramatically over the past 10 years. Many know that estates of up to $2 million can be transferred free of federal estate taxes. In 2009, estates up to $3.5 million can pass without estate tax free.
What many people do not understand is that non-taxable estates are still subject to the probate process. In fact, in Alaska probate is required whenever someone who has died (called the “decedent”) owned property with a total value of $15,000 or more.
So what exactly is probate? Many people have heard horror stories about probate and people seem to want to avoid it. But what is probate really about?
The best way to explain probate is to talk first about property rights. In America, we believe strongly in protecting an individual's right to own property. In this case, “property” means everything we own; including homes and land, bank and investment accounts, cars and boats, pensions and retirement accounts, and all of the stuff we keep in our homes, garages and storage sheds.
The Constitution provides that citizens may not be deprived of property by the government without “due process” of law. Every state, including Alaska, has criminal laws intended to protect property from thieves, bandits or aggressive family members. These laws allow us to enjoy the right to exclude others from interfering with our private property. These strong property rights allow us to control, invest and enjoy our property while we are alive. The American work ethic and our free enterprise system encourage capitalism, entrepreneurial enterprises, investment and wealth creation.
The problem occurs when we die or become incapacitated. Who will control our property then? The same laws that protect our property rights also prevent our family or friends from taking control of the property without proper legal authority. Not surprisingly, transferring legal authority over property requires an appropriate and orderly legal process with the involvement of a court. Probate is the name of that court process.
In the probate court, the personal representative (also called the “executor”) is given legal authority to handle property owned in the decedent's name alone. The probate judge issues a court order stating who will act as personal representative. This order is called Letters Testamentary if the decedent had a will and Letters of Administration if the decedent died without a will. The personal representative is usually named in a will.
After the court determines that a will is valid, the personal representative takes control of the estate, which is comprised of all assets owned by the decedent alone or as tenants in common with someone else.
But the personal representative cannot immediately distribute the property to family members. First, the decedent's affairs must be wound up. During the probate administration, the personal representative will manage the assets, notify family, publish notice to and pay creditors, file final income tax returns, file an estate tax return if applicable, liquidate some assets and finally distribute property as directed by the will or as ordered by the court.
In Alaska, even in a simple and straightforward case, the probate process usually lasts about a year. If the decedent owned real estate in more than one state, there will be a probate in each state where real estate is located. Ultimately, the time and expense involved depends upon whether the financial and personal affairs of the decedent were organized or disorganized prior to the person's death.
The first goal of a good estate plan should be to assure that property passes to the right people in a way that promotes family harmony and avoids conflict, lawsuits and hurt feelings. Therefore, passing property to family members through probate isn't necessarily a bad thing. It is always a good idea to consult with a qualified attorney to understand how your estate plan works, to assure that the inheritance you leave is a happy one.
Have you planned for an orderly probate process?
Attorneys Richard and Susan Foley are the founding owners of Foley & Foley, P.C., a full-service business and estate planning and probate law firm located in Anchorage. Learn more about them at www.foleyfoley.com.
