Probate is the court supervised legal process that includes determining the validity of the will and transferring the legal title of property from the deceased to the deceased's heirs or beneficiaries. It also includes paying any debts owed and paying federal estate and income taxes. In most cases, the entire process is administered by an executor. In large estates, probate can be very complex and costly.
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In most states, an estate does not have to go through the probate process if it is worth less than a particular amount. For example, California estates worth less than $100,000 do not need to go through probate, while in Wisconsin the threshold is $50,000. In addition, most states offer a shortened and simplified probate process for small estates. Each state has an amount for what qualifies as a small estate. If the estate does qualify for small estate probate, the probate courts will not require you to have a legal representative. This can save a great deal of money in legal fees.
Each state has different probate laws, so the costs can vary a great deal. For most estates, both an executor and a lawyer will be required for the probate process. Some states set a limit on the amount of fees that lawyers and executors can charge for probate services. For example, in California, attorneys and executors can each take a maximum of 4 percent of the first $100,000 of the gross value of the estate, then 3 percent of the next $100,000, then 2 percent of the next $800,000, then 1 percent of anything over that amount. In some other states, the courts may set fees they feel are fair. According to finance expert Liz Weston of MSN Money, this is generally around 3 percent of the estate.
In addition to the fees paid to the lawyer and the executor, there may also be appraisal fees, court filing fees, bond fees, legal fees and accountant fees. Federal and state estate taxes will also need to be paid on larger estates. The additional costs can vary greatly from one state to the next, depending on individual state requirements. According to attorney Ken LaMance of LegalMatch, the typical probate process costs anywhere from 5 to 10 percent of an estate, but can go as high as 15 percent. Some states also set limits on fees that can be charged. For example, California appraisal fees are limited to 0.1 percent of the value of the assets, while probate court fees were set at $320 as of 2009. LaMance points out that court fees in other states can be as high as $3,000.
These are several ways that you can avoid paying high probate costs. One of these is through setting up a living trust. In a living trust, you transfer the majority of your estate to a trust while you are still alive. The trust then becomes the owner of your property, so probate is not required. You also designate a successor trustee, who would control the trust on your death. The successor trustee can then distribute the assets of the trust to the beneficiaries you have specified in the trust document. Property owned jointly with rights of survivorship also passes automatically to the survivors and does not go through probate. Life insurance, pension plans and retirement accounts are paid directly to the named beneficiary, so these funds also do not need to go through probate.
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