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What is Probate?

If you have a Will, probate is the process by which the instructions in your Will are executed (which is why you name an “executor”).  If you do not have a Will, probate is the process by which your property is administered under the laws of descent and distribution (which is why the court selects an “administrator”).  It is the probate court’s role to watch over the executor to ensure that he or she follows the instructions in the Will, or over the administrator to ensure compliance with the laws of descent and distribution.

The probate process is designed to protect all persons “interested” in an estate.  This includes every person or entity (such as a charity) named in the Will, and every person who is, or would be, an heir under the laws of descent and distribution.  The court will require these persons and entities to be informed of each step in the probate process, and will provide them an opportunity to be heard if they object to the actions being taken by the executor or administrator.

What Property is Subject to Probate?

When you die, you essentially have two “estates” – one for probate purposes and one for tax purposes.  Your probate estate consists of all property you owned in your own name at death, but does not include property which passes to another person by operation of law or by contract.  This means that property held jointly, with rights or survivorship, passes to the surviving joint owner regardless of what your Will may provide.  Similarly, insurance policies pass to the person named as your beneficiary in the policy – even if you expressly provide for a different distribution in your Will.  The same is true of IRA’s, pension plans, and annuities.  They all pass to the named beneficiary, and are not part of the probate estate.  The failure to reexamine your beneficiary designations from time to time could lead to unintended results at your death, and therefore are a critical step of the estate planning process.

Property placed in trust during your lifetime will also pass free of probate -- which presents a significant planning opportunity (see Living (Revocable) Trusts).

In contrast, your estate for tax purposes includes all property, regardless of how it is held.  It may be far different (larger) than your probate estate.  For more information on estate taxation, visit the Estate Taxation - Federal & Vermont webpage.

How Does Probate Work?

The probate process consists of a number of steps.  The first step is to file a petition with the court, requesting the appointment of an executor or administrator and allowance of the Will (if there is one).  In most cases, the persons interested in the estate will consent to this appointment and allowance.  The executor/administrator will then prepare and file an inventory which lists the assets in the estate.  At the same time, he or she will ascertain whether the decedent had any debts, including income and estate taxes.  Once all debts are paid, the court will then require the filing of an accounting which details the payments of debts, receipts of income, etc.  If the accounting is approved, the court will then decree the remaining assets to the estate beneficiaries according to the Will (or if no Will, the laws of descent and distribution).  The executor/administrator will then be ordered by the court to distribute the assets to the beneficiaries, and the estate is then closed.

For more information regarding the probate process, visit the Chittenden District Probate Court webpage.

How Can I Avoid Probate?

Many clients have read horror stories about the probate process, and in many states the stories may have merit.  Consequently, one of the main objectives of clients is to avoid probate. 

Although the probate process in Vermont is relatively simple and inexpensive, probate can be avoided in several ways.  One is by placing all of your assets into a living trust during your lifetime.  Since these assets would then be owned by the trust (although totally within your control due to the ability to revoke the trust), they would not be part of your probate estate.  The trust, rather than your Will, would control the management and disposition of your assets.  (Visit the Living (Revocable) Trusts webpage).

Another method is to put all of your property in joint name with a spouse or other family member.  Property held jointly with rights of survivorship passes to the surviving joint owner.   Clients sometimes put their property in joint name with the eldest child subject to the understanding that this child will divide it equally with his or her siblings.  Alternatively, some people put different assets in the names of different children, all in an effort to accomplish the desired division of their property.  Despite its simplicity, this type of planning is one of the single most common sources of problems in estate administration.  Property held jointly with one child becomes that child’s property at the parent’s death.  Often, that child will have many reasons for not sharing the property equally with siblings, and legally is not required to do so despite the deceased parent’s intent. Putting different assets in the names of different children can also cause unintended results, since items of property appreciate, or depreciate, at different rates.  Where estate taxes are applicable, this type of planning can also cause  uncertainty regarding who must pay the tax.  In fact, there are very few situations where joint ownership of all assets is an advisable estate planning alternative. 

Complete avoidance of probate is difficult to achieve, for if even one asset is owned at death, the probate process can be triggered.  Probate avoidance can also be cumbersome -- for example, holding your day-to-day checking account in a trust can make use of the account difficult at times.  Given the relatively streamlined nature of Vermont's probate system, attempting to avoid probate can be more trouble than it is worth.

If you have any questions regarding probate or any aspect of the estate planning process, please  contact Richard W. Kozlowski, Esq. at (802) 343-7419 or by e-mail.

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