INHERITANCE ON HOLD?

The Misconceptions of Probate

One of the biggest misconceptions about probate is that it’s not a big deal, something that can be handled quickly and without much fuss. However, this couldn't be further from the truth. The average probate process takes around 20 months to complete, according to Trust & Will. Despite this, only 2% of survey respondents seemed to grasp the length of time involved.

“This isn’t a matter of a few weeks. It’s guaranteed to take months,” said Mitch Mitchell, product counsel at Trust & Will. “It’s a full-time job when you take it on.” The complexity and duration of the probate process can be overwhelming, particularly for those who are already dealing with the emotional toll of losing a loved one.

Kelsey Simasko, an elder law attorney based in Detroit, echoed this sentiment, noting that probate is often more complicated and time-consuming than people expect. “One of the biggest misconceptions is that probate isn’t a big deal,” she said. Yet, the reality is that probate can be a lengthy, expensive, and emotionally draining process.

The Financial Burden of Probate

The financial aspect of probate is another area where many Americans lack understanding. More than half of the survey respondents admitted they had no idea how much probate costs, with only 4% estimating that it could exceed $10,000. In reality, probate typically costs between 3% and 7% of the estate’s value. For an estate worth $500,000, this means costs could range from $15,000 to $35,000.

These costs can quickly add up, especially for larger estates. Jonathan Swanburg, a certified financial planner in Houston, noted that most people underestimate the expense of probate. “I’ve rarely seen people overestimate the expense,” he said. The costs associated with probate can significantly reduce the amount of inheritance that beneficiaries receive, adding another layer of complexity to an already difficult time.

Despite their lack of understanding, 52% of respondents acknowledged that probate would likely be difficult. This fear is often based on horror stories they’ve heard from others who have gone through the process. As a result, many people approach probate with a sense of dread, unsure of what to expect.

The Impending Wealth Transfer and Its Challenges

The lack of understanding about probate and estate planning is particularly concerning given the impending generational wealth transfer that is expected to take place over the next 20 years. As baby boomers reach retirement age, they control roughly half of the wealth in America. Researchers estimate that up to $84 trillion could change hands as this wealth is passed down to younger generations.

Much of this wealth will go to millennials, those born between 1981 and 1996. However, many of them are unprepared for the responsibilities that come with inheriting significant assets. In a companion report, Trust & Will found that one-third of millennials don’t even know if their parents have an estate plan. This lack of communication can lead to confusion and stress when the time comes to settle an estate.

The report also revealed that only 58% of millennials have discussed estate planning with older relatives, and 62% do not have a will or trust of their own. This lack of preparation can leave millennials vulnerable when they suddenly find themselves responsible for managing an estate.

Why Don’t We Know More About Probate?

Estate-planning experts suggest two primary reasons why most people don’t know more about the probate process or their own family’s estate plans.

First, many people only experience the full sweep of probate after the death of their last surviving parent. The death of a first parent in a married couple can be relatively simple, at least from a probate perspective. “You’re probably only going through this process once,” said Colin Day, a certified financial planner in St. Louis. This limited exposure to the probate process means that many people are unprepared for the complexities that can arise when settling an estate.

Second, discussing death and inheritance with aging parents is often seen as an uncomfortable conversation, something that adult children are reluctant to bring up. “It’s a tough conversation, but an important one,” said Mitchell. Avoiding this conversation, however, can lead to confusion and legal complications down the line.

Probate laws vary significantly by state, and sometimes even within states. For example, in Texas, where there are 254 counties, probate procedures can differ depending on the judge. “We have 254 counties here in Texas,” Mitchell said.

“There are at least 254 different ways of doing probate because each judge gets to decide how they want the forms to look.”

State laws also differ on what happens if you die without a will, a scenario that is becoming increasingly common. According to the Center for Retirement Research at Boston College, the share of over-70 households with wills or trusts has been in steady decline, dropping from 73% in 2000 to 64% in 2020. When someone dies without a will, the courts take over, and the distribution of assets can be unpredictable.

For example, if a New York resident dies intestate (without a will), leaving a spouse and their biological children, the spouse inherits the first $50,000 of the estate plus half of the balance, while the rest goes to the children, according to an analysis by Trust & Will. In Florida, under the same scenario, the spouse would inherit everything. These differences underscore the importance of having a will in place and understanding the specific probate laws in your state.

Steps to Take Now

Given the complexities and potential pitfalls of probate, experts recommend that everyone take proactive steps to protect their assets and ensure their loved ones are not burdened with unnecessary stress and expenses. Here are some expert tips:

• Consult an Estate Planner: A living trust, beneficiary designations, and understanding the nitty-gritty details of probate are crucial. Estate planners can guide you through the process and help you create a plan that suits your needs and those of your family.
• Write an Estate Plan: Most adults should have a will as part of a larger estate plan. This plan should dictate not only what happens to your assets after death but also who will manage your affairs in case of an emergency. An estate plan can help avoid many of the complications that arise during probate.
• Consider Hiring an Attorney: While it’s possible to create a basic estate plan on your own, many experts recommend working with an attorney to ensure that everything is done correctly. Estate plans are complicated, and you don’t want to make mistakes that could cause problems for your loved ones after your passing.