Why do I need Probate?

Many people fear probate because they believe it is a nightmare to do, or costs a LOT. But it does not have to take more than 6 to 8 months as long as no one is fighting about anything. Often the process is closer to 2 months, if you pre-plan well. Plus, there are a lot of benefits that come with it.

Many families are surprised to learn they need to go through probate years after a loved one has died. This usually comes up because they are trying to sell the family home. When two spouses co-own their home in survivorship, then by law when one dies the other becomes the

sole owner of the house. Usually all the bank accounts and cars are co-owned, or beneficiaried to the other spouse, so all those were able to transfer quickly after the first spouse passed. The problem is that there is no way to prove that the surviving spouse has authority to sell the house because they are the sole owner until the first spouse is probated.

It is very common to find out that the car was only in one name, not both. Sometimes there are bank accounts in just the name of the deceased, also. If these items did not have specific beneficiaries, then the Last Will controls what happens to them. But in order to give that document power, it has to be submitted to probate court and probated. Until then there is no way to transfer the asset. So, another benefit of probate is the ability to transfer assets which otherwise are stuck in a deceased person’s name.

Even when beneficiary designations and/or trusts are set up right, there is another reason to go to probate. Taxes! Specifically, Capital gains taxes. When the owner of the assets, or the maker of the trust, dies, the tax basis of the stock or real estate can be re-set to current values. This means that if they bought a house for $50,000, and decades later it is worth $500,000, the heirs can file to have the house treated as if it was bought for $500,000. That way they can sell it without paying a capital gains tax. You can “avoid probate” or you can avoid taxes. Not both! There is a cost to going through probate, but it is usually a lot cheaper than paying those taxes. To give you a rough idea, if the deceased had a $1,000,000 estate the court will charge around $4,000 for the process. On that $500,000 house I described, taxes would be about $67,000.

One final benefit to probate is avoiding the Medicaid spenddown. There is a special type of Last Will which, once probated, can automatically protect assets that the deceased spouse had so that the other spouse can either stay on Medicaid, or go on it, without a 5 year look back and without a spenddown.

Attorney Halley C. Allaire is principal in the law firm of Allaire Elder Law, a member of the National Academy of Elder Law Attorneys, Inc., with an office at 271 Farmington Avenue, Bristol, (860) 259-1500, or on the web at www.allaireelderlaw.com. If you have a question, send a note to Attorney Halley C. Allaire and your question may be discussed in a future column.