Probate is the court procedure that allows for the administration of an estate. During the probate process, the court oversees the different tasks involved with managing the assets of the deceased. These tasks include: identifying property, paying any debts or taxes, identifying proper heirs, and distributing property to those heirs.
A personal representative, generally a relative or friend, completes most of the work with the assistance of an attorney. An accountant and appraiser often support the representative as well. Sometimes the court appoints the administrator of an estate.
Not all of a deceased’s property is subject to the probate process. Some assets pass directly to a beneficiary, without any court involvement. These assets include: life insurance that names a beneficiary, retirement accounts, annuities, bank accounts with a payable on death designation, securities, property in trust, and joint tenancy property. Although these assets bypass the probate process, they may still be counted for the taxable estate calculation.
The Probate Process and Estate Administration
Probate is initiated when the court appoints a personal representative, typically the person named in your will. A “Notice to Creditors” is then published in a local newspaper to alert unknown creditors that they have four months to file claims against the estate. For most probates, the “Notice to Heirs, Devisees, and Interested Parties” is sent to the deceased’s interstate heirs, devisees, Department of Human Services, and the Oregon Health Authority. The personal representative then takes an inventory of the assets.
While the personal representative is conducting business on behalf of the estate, he or she must keep good records. Income collected, payments made, and assets distributed all need to be accounted for. After the four-month credit claim period ends, and debts have been paid, the personal representative can apply for court approval to distribute the remaining assets to beneficiaries. Finally, the personal representative is responsible for paying taxes out of the estate, such as the deceased’s final income tax return (via a fiduciary return), the Federal Estate Tax Return, and the Oregon Inheritance Tax Return.
Benefits of Probate
Probate does offer some important benefits. Principally, it provides protection by having court supervision over the deceased’s property. Once the probate creditor’s claim period expires, generally four months after the executor is appointed, it is very difficult for creditors to claim any interest in the estate. Probate may also bar later lawsuits that would otherwise be difficult to defend without the help of the deceased. This is useful for professionals who are subject to malpractice — doctors, accountants, and attorneys.
Drawbacks of Probate
Probate has several drawbacks, which is why some seek to avoid it. Formal probate takes at least six months to a year. Sometimes, probate can drag on for several years, or in extraordinarily rare situations, for decades. Probate can be expensive due to professional and personal representative fees. The expenses of probate increase in relation to the size of an estate. It can cost up to $1,200 just to pay for court filing fees and publication costs.
The law sets personal representative fees: 7% of the first $1,000; 4% of the next $9,000; 3% of the next $40,000; 2% of any amount in excess of $50,000. The representative also receives 1% of property – except life insurance proceeds – which are reportable on the deceased’s state and federal estate tax return. Occasionally, the personal representative will receive greater compensation when unusually valuable services have been performed.