Probate is the legal process of administering an estate. The nolo.com website explains it well, saying:
Probate is a legal process that takes place after someone dies. It includes:
- Proving in court that a deceased person's will is valid (usually a routine matter)
- Identifying and inventorying the deceased person's property
- Having the property appraised
- Paying debts and taxes, and
- Distributing the remaining property as the will directs.
Part of the process also includes transferring title and ownership of various assets to the inheritors.
If this all sounds like a complicated hassle, it often is. It can be a costly one, too, involving lots of paperwork and fees to people such as lawyers, accountants, appraisers, and executors, as well as court costs. All these costs would otherwise have gone to beneficiaries. Probate costs can amount to roughly 5% to 10% of the value of the estate. So with an estate worth $200,000, probate could eat up $10,000 to $20,000 -- a sizable chunk. In addition, property remains in a kind of limbo while in probate -- and that can last months or even years.
However, probate does have some advantages. For example, it tends to be a methodical and unbiased system, since a judge oversees it. But for most people, the downside of probate overshadows the upside, so it's best avoided. And, it can be avoided, if you take the time to learn more about it and take some actions.
Learn more about estate planning issues at Estate Planning Links. And if you'd like an actual person (a financial pro, no less) to talk to about your tax concerns and your financial planning needs, look into our TMF Money Advisor.