Rupa Pereira
By Rupa Pereira
This article is a continuation of the topic we started last month – discussing one’s mortality i.e. death and transferring wealth to intended parties as a way of continuing one’s legacy.
As a quick refresher, I introduced concepts such as Estate, Probate and Wills. To get your head around this concept, Estate is the ‘What’ and Probate is the ‘How’.
In essence, an estate is the collection of assets, and probate is the legal procedure used to manage and distribute those assets after a person dies. The process usually begins when an interested party (often the named executor in a will, or a family member if there’s no will) files a petition with the probate court where the deceased lived. This process is administered by the state court. An executor is appointed to manage the estate. If there’s no will, the court appoints an Administrator, usually a close family member, according to state law. The Administrator or Executor identifies, gathers, and values all of the deceased person’s assets such as real estate, bank accounts, investments, personal property, and any other valuables. The role of an administrator/executor also includes the following duties:
Paying Debts and Taxes: Valid debts (like mortgages, credit card bills, medical expenses) and final taxes (income and estate taxes, if applicable) are paid from the estate’s assets.
Distributing Remaining Assets: Once all debts, taxes, and probate expenses are settled, the personal representative distributes the remaining assets to the beneficiaries (heirs) as outlined in the will, or according to state intestacy laws if there is no will.
Closing the Estate: Once distributions are complete and approved by the court, the personal representative files a final accounting and petitions the court to formally close the estate.
Probate laws are state-specific, meaning the process can look quite different depending on where the deceased resided and where their property is located. Thus, what works in North Carolina may not necessarily be true for another state.
Speaking of what’s in the estate, there are probate and on-probate estates. Probate assets are those that specifically must go through the probate court process to be legally transferred to beneficiaries. They include property owned solely by the deceased and bank accounts in the deceased’s name alone.
Non-Probate Assets are also part of the deceased’s overall “estate” in a general sense, but they are structured in a way that allows them to bypass the formal probate process and transfer directly to beneficiaries such as:
• Those assets that transfer directly to the designated beneficiary upon the owner’s death without going through the probate court. Common examples include: Life insurance proceeds, Retirement accounts (like 401(k)s, IRAs), Bank accounts or brokerage accounts with a “Payable on Death” (POD) or “Transfer on Death” (TOD) designation.
• Property transferred into a living trust (or revocable trust) before the owner’s death bypasses probate because the trust legally owns the assets. The trustee then distributes the assets according to the trust’s terms.
• Property owned jointly with “right of survivorship” where the deceased owner’s share automatically passes to the surviving joint owner(s) outside of probate.
As we’ve seen, when a person passes away, their assets are administered through one of two main pathways: either through the probate process or directly through a trust.
Pros of Probate Administration:
The court supervises the entire process, which can provide a layer of security and ensures all legal steps are followed correctly. This can be reassuring for some families.
A will goes through a formal court process to be declared valid, reducing the odds of future challenges to its authenticity.
Cons of Probate Administration:
Time Consuming and Expensive – This process can stretch to multiple years. Those court costs, attorney fees, executor/administrator fees, and appraisal fees can significantly reduce the value of the estate passed to heirs. Probate is a public process, meaning details of the estate, including assets, debts, and beneficiaries, become public information.
Quite a few celebrities passed without a will, making room for multiple claims and disputes. Ugggh! Their soul may not rest in peace after all – with or without Will.
In contrast to Probate assets, Assets held in a Living Trust (or revocable trust) are non-probate assets and are administered privately and directly by a designated trustee.
Pros of Trust Administration:
Avoiding probate means the process is generally faster, less costly, and private.
A trust offers a high degree of control over how and when assets are distributed, even after death. This is particularly useful for minor children, beneficiaries with special needs, or those who might not handle a large inheritance responsibly at once.
Cons of Trust Administration:
Creating a trust typically costs more initially than drafting a simple will, due to the complexity of the legal document. The trustee has a significant fiduciary duty and responsibility for managing the trust. While it is often simpler than probate, it still requires administrative effort.
In summary, while probate provides a structured, court-supervised process, trusts offer a more private, efficient, and flexible way to administer assets.
In the next installment, I’ll cover nuances related to cross-border estate matters, but not before leaving you with some ruminating thoughts.
A wise Nana/Nani, with assets so grand,
Placed wealth in a trust, close at hand.
No probate, no plight,
Just futures so bright,
A clear, peaceful legacy planned!
Rupa Pereira is a CFP, EA, CSLP and an Advice-Only Planner and Tax Professional based in North Carolina. She specializes in cross-border matters and all things financial planning. Contact: info@fwjplanning.com
