8 Disadvantages of Probate
Probate is the legal process that occurs after someone dies, during which a court oversees the distribution of their assets, ensures any debts or taxes are paid, and verifies the validity of their will (if one exists). If there is no will, the court will distribute the assets according to state law. However, going through probate has several downsides, which is why we encourage proactive estate planning to bypass this process.
In this post, we dive into eight disadvantages of probate that should make you consider alternative options for passing on your assets.
1. Time-Consuming Process
One of the most significant disadvantages of probate is the time it takes to complete. Depending on the complexity of the estate and the state’s probate laws, the process can take anywhere from several months to a few years. This delay can leave heirs waiting a long time to receive their inheritance, which can be particularly stressful if they are relying on those funds.
In California, the process can take 9 to 18 months or longer, especially if the estate is large or involves real estate.
California also has strict filing and notice requirements, which can lead to additional delays if any procedural steps are missed. Multi-state probate can be an issue if the decedent owned property in other states, further complicating and delaying the process.
2. Expensive Fees
Probate can be expensive. The estate may incur various costs, including court fees, attorney fees, and executor fees. These expenses can quickly add up and are often paid from the estate's assets, reducing the overall amount that beneficiaries receive.
Due to California's specific probate laws, probate can be particularly complex and expensive. California uses a statutory fee system, meaning attorney and executor fees are calculated based on the size of the estate, not the complexity of the work. This can result in high fees for even moderately sized estates.
3. Loss of Privacy
Probate is a public process, meaning that all documents filed with the court, including the will and asset information, become part of the public record. This lack of privacy can expose sensitive details about your family’s finances and lead to unwanted attention from creditors, fraudsters, or distant relatives.
4. Family Disputes
When a family member passes away, emotions can run high, and probate can sometimes trigger disputes among family members. These disagreements can arise over the interpretation of the will, the division of assets, or who is responsible for managing the estate. In the worst cases, probate can lead to lengthy and costly litigation, further delaying the process.
5. Limited Control Over Asset Distribution
During probate, the court oversees the distribution of assets, which means that your beneficiaries have little to no control over when or how they receive their inheritance. This lack of flexibility can be problematic if your heirs need immediate access to assets or if you want specific terms around how your assets are handled after your death.
Did You Know?
At DiversiFi, we offer Managed Estate Planning as an add-on to our Financial Planning service.
In partnership with EncoreEstate Plans, we will help you cross the finish line on your estate plan, serving as your liaison and accountability partner through the entire process. Estate planning is a crucial part of Financial Planning, and we want to make it easy for you! To learn more, schedule a free consultation with one of our Advisors.
6. Frozen Assets
While the probate process is underway, the assets in the estate are typically frozen, meaning that beneficiaries cannot access or use them. This can create financial hardship, particularly if beneficiaries need funds to cover living expenses, medical bills, or other immediate costs.
7. Risk of Will Contests
The probate process opens the door for individuals to contest the validity of a will. Someone might challenge the will’s authenticity, claim that it was created under duress, or argue that it does not accurately reflect the decedent’s wishes. A will contest can drag out the probate process, add to legal costs, and cause deep family rifts.
8. Complex Tax Implications
In some cases, probate can expose the estate to complex tax issues. While federal estate taxes only apply to estates above a certain threshold, state-level inheritance or estate taxes can still impact smaller estates. Additionally, probate can create taxable events, such as capital gains taxes on certain assets, that could have been minimized or avoided through proper estate planning. By using trusts and other estate planning tools, you can often reduce the tax burden on your heirs and maximize the value they receive.
How to Avoid Disadvantages of Probate
Given the disadvantages of probate, many people choose to plan their estates in ways that help avoid probate. Some common strategies include:
Establishing a living trust: Assets in a trust bypass probate and go directly to the named beneficiaries.
Designating beneficiaries: For assets like life insurance and retirement accounts, designating a beneficiary allows those assets to be transferred outside of probate.
Joint ownership with rights of survivorship: Property owned jointly can automatically pass to the surviving owner.
Avoiding probate can save your heirs time, money, and stress, while preserving your family’s privacy. It’s worth consulting with a financial advisor or estate planning attorney to explore your options.
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