What is Probate?
Probate is the court process for settling the estate of a deceased person. The executor named in a Will, or a court-appointed administrator if the decedent did not leave a Will, must open an estate file with the Clerk of Superior Court in the county where the decedent was living at the time of death.
The executor’s responsibilities include filing an inventory of the decedent’s property, sending notices to creditors, collecting and distributing funds, and filing accountings. Estates are usually settled within a year after they are opened. However, executors sometimes encounter complexities during the probate process which cause estates to remain open much longer.
The Benefits of Avoiding Probate
Probate in North Carolina has historically been fairly affordable. However, starting September 1, 2005, the fees for filing increased substantially. Prior to September 1, 2005, the filing fee included a charge of four dollars per one thousand of property listed on the estate inventory, with a cap at three thousand dollars.
Under the new law, the cap on the four dollars per one thousand is six thousand dollars. Therefore, the filing fees of an estate with property totaling $1,000,000 would have been $3,000 before September 1, 2005. Now, the filing fees will cost the estate $4,000. Filing fees for an estate with assets totaling $1,500,000, which also would have been $3,000, are now $6,000.
Besides the potentially sizable filing fees, probate can be time consuming and complicated, especially for an executor who has little experience with the process. Also, since all of the court documents are public records, there is no privacy in the probate process. Financial records and other personal information, such as the names of beneficiaries, may be examined by the public.
What Property is Not Subject to Probate
There are several types of assets which are not subject to probate. For example, if a married couple owns real estate in North Carolina, the property will automatically transfer to the surviving spouse. Real estate will also automatically transfer if it is held jointly “with right of survivorship”.
Life insurance and other accounts, such as retirement accounts or IRAs, where the holder named beneficiaries, are not subject to probate. Pay on Death (POD) or Transfer on Death (TOD) accounts are also non-probate assets, since these accounts direct a bank or brokerage company to pay a named person after the account holder’s death. A POD or TOD account differs from a traditional joint bank account because a beneficiary of a POD or TOD cannot access the account during the holder’s lifetime.
Preparing and funding a Living Trust is another effective method to avoid the probate process and associated fees. Any assets transferred into the Trust, before a person’s death, are not probate assets. Unlike probate documents, Trusts are private instruments. Only trustees and beneficiaries need to know the contents.
Most Living Trusts are revocable, meaning the creator, usually called the Settlor or Grantor, can amend, add to or revoke the trust completely. Living Trusts allow the Settlor to retain control over his or her assets. Typically, a Settlor is also the Trustee of the Trust and can determine how much of the income and principal should be used during the Settlor’s lifetime. Living Trusts can also provide for management of assets for beneficiaries after the Settlor’s death.
If you would like to save your loved ones the time and expense of probate after your death, contact an estate planning attorney for more information on these and other options.