Probate Considerations

What is Probate?

Probate is the court supervised process of validating Wills, gathering assets, ensuring that creditors and taxes are paid, and distributing the remaining assets to the rightful heirs.

What are Probate Assets?

There is often confusion between what constitutes taxable estate assets (for estate tax purposes) and what constitutes probate assets, but the distinction can be extremely important.

Assets that will be included in your estate for death tax purposes include many assets you may not think of when considering your personal net worth, such as the proceeds of life insurance policies, amounts payable under pension, profit-sharing, IRAs, and other retirement plans, deferred income, and interests in trusts created by others.

Your probate estate may, however, be much smaller than your taxable estate; and you may, in fact, have no probate estate whatsoever. Probate assets are those that pass under the terms of your Will or under the laws of intestacy should you die without a Will.

Non-probate assets are those that:

  • Pass by beneficiary designation to a named beneficiary, such as life insurance proceeds, pension or IRA benefits, or annuity benefits;
  • Pass by contract, such as under a buy/sell agreement;
  • Pass by operation of law, such as property held in joint tenancy with rights of survivorship, payable on death accounts, or marital property with rights of survivorship; and
  • Assets transferred during lifetime to a “Living Trust” or “Revocable Trust” which sets out terms for management and ultimate distribution of the trust assets.

Since estate planning must include the value of your non-probate assets, too, it is, therefore, essential that you coordinate the beneficiary designations of non-probate assets with your overall estate plan.

As part of the estate planning process I gather information regarding your non-probate assets and the beneficiary designations in place in order to determine if changes should be made to coordinate those distributions with the rest of your estate plan.

What are the Disadvantages to Probate?

  • Probate costs can be significant.
  • Court involvement in entire process; even after probate is completed if your Will creates any trusts for children, grandchildren or persons with special needs.
  • The probate process can result in substantial delays in transferring assets and closing an estate.
  • Loss of privacy because the value, the type of assets, and who receives what assets are all information related to an estate in probate that are matters of public record.

Failure to Plan

If there is no Will, the Court will distribute the deceased person’s probate assets according to the laws of intestacy.

Under Wisconsin intestacy laws, all property will pass to your surviving spouse if either (1) you leave no children, or (2) all of your children are also children of your spouse.

If you leave children that are not the children of your spouse, those children will receive one-half (1/2) of your property and your spouse will receive the other half (1/2) of your property. Also, a minor child will take control of his/her share at age 21 regardless of his/her ability to manage the funds.

Advantages of a Will vs. Intestacy

  • Avoids distribution under the laws of intestacy. First of all, most people would prefer to choose who will receive their property when they die rather than have the State make that decision for them. Secondly, charities and step-children will not receive a portion of your estate under the laws of intestacy. Thirdly, the laws of intestacy treat all your children equal which may or may not be appropriate. Fourth, the assets will be distributed outright to any child or grandchild over the age of 21.
  • Nominates a guardian for minor children. Relatives are almost always appointed by the Court, but relatives are not always the best choice and consideration must be given to the financial situation of the potential guardian as well as his or her health, age, willingness and ability to care for your children consistent with your desires.
  • Names the Personal Representative. Because the duties and responsibilities of administering an estate can be time consuming and complicated, a qualified individual and/or corporate trust company should be chosen. If you do not have a Will, the Court selects who will administer your estate.
  • Waives the probate bond. Unless directed otherwise by a Will, the Court will require a fiduciary bond to be posted by the personal representative, and this cost will be borne by the estate. A bond insures that the personal representative will carry out his/her duties faithfully.
  • Permits specific bequests to individuals. Specific bequests of jewelry, heirlooms, cash, or other property may be made in a Will.
  • Permits specific bequests to charities. Specific bequests of cash or other property to a charity or charities may be made in a Will.
  • Enlarges the powers of the personal representative and reduces liability. Under a Will, you can expressly permit the personal representative to take certain actions that would not otherwise be allowed without the cost and delay of court approval. You can also reduce or eliminate the potential liability for your personal representative for taking those actions.
  • Tax Savings. Substantial tax savings are possible through the use of testamentary trusts and/or disclaimers through the structure of your Will.
  • Peace of mind. Although not measurable in dollars, peace of mind is a valuable benefit for anyone concerned with his or her family’s well-being.