Executive summary
- Probate is a necessary step for transferring the ownership of assets from a deceased individual to their legal heirs (if there is no will) or to the beneficiaries identified in their will. This can ensure the best interests and assets of high-value estates are protected.
- High-net-worth individuals may need to navigate through the probate process if they have any outstanding assets not included in a trust or without formally designated beneficiaries.
- High-net-worth individuals should expect steps that include validating a will, responding to creditor claims to pay off debts, preparing an accounting and ultimately distributing assets to the beneficiaries identified in a will or by state law.
- Common challenges facing high-value estates during probate are the requirements for probate to be public record, the risk of disputes between beneficiaries, and difficulty with complex asset structures.
Introduction
Probate is the process of managing, administrating, and distributing the assets of an estate, either with or without a will. It provides an organized, legal avenue for reviewing the will, resolving debts, transferring ownership of estate property, and more.
The estates of high-net-worth individuals are usually rather complex and involve a considerable number of assets. When it comes to assets like a mansion, a yacht, luxury jewelry, revered artwork, and other high-value possessions, it’s important that they don’t just end up in anyone’s hands. A high-net-worth individual likely has heirs, successors, and beneficiaries in mind, underscoring the value of proper estate planning.
However, unless all of an estate’s assets are accounted for in a trust, a probate procedure is still required in many cases to formally transfer ownership of any remaining assets to the rightful beneficiaries. If you are a high-net-worth individual or if you are an interested party in a high-net-worth individual’s estate, it’s important you understand the ins and outs of the complex probate process so you can prepare to navigate it successfully and efficiently.
What is probate? The process and its importance
Probate is the process of managing, administrating, and distributing assets of an estate after an individual dies, either with or without a will. Probate offers a formal process for inventorying estate assets, resolving outstanding debts, and transferring ownership of inherited property to the rightful beneficiaries.
Probate is a comprehensive process and encompasses all the steps from validating a will left behind by an individual to distributing the assets left behind to beneficiaries and heirs identified in the will. This process involves appointing an executor (named in a will) or personal representative (when there is no will) to handle these responsibilities to ensure careful, responsible administration of the estate.
When a qualified and capable person isn’t appointed as Executor or Personal Representative, probates can become overly complicated and burdensome. For high-networth estates, it is imperative the will names someone capable of making sure the estate is responsibly managed.
Are there any benefits to probate for high-net-worth individuals?
Although probate is often considered to be an undesirable process, it is a viable legal process and does have its benefits. Probate provides an organized, court monitored, formal process for ensuring that estate assets are transferred to the appropriate beneficiaries and that they receive their rightful inheritance.
Probate offers the following benefits:
- It involves the probate court to offer discretion over whether the deceased left a valid will, whether actions align with the wishes of the deceased, and how to address disputes.
- Probate puts an executor or personal representative in the position to represent an estate and distribute assets according to the wishes of the deceased.
- An executor or personal representative will be in place to manage the assets of the estate property, preventing the accumulation of avoidable debts and fines.
- The executor or personal representative will have the opportunity to notify creditors and resolve any debts against the estate.
- The executor or personal representative will ensure responsible management of all investments and finances while carrying out probate.
- There is an opportunity for disputes to arise during the probate process, and probate offers specific avenues for addressing and resolving these disputes.
Although some may feel that probate is inconvenient, it does offer a reliable avenue for ensuring that the estate and its best interests are protected, especially in high-value estates with complex asset portfolios. Above all else, it ensures that estate assets are carefully distributed to the rightful beneficiaries and that all actions are aligned with the deceased’s last wishes.
How did a high-net-worth estate end up in probate?
Probate is common when estate assets are left behind by a deceased individual without already having transferred ownership to a beneficiary or to a Trust. In some states, like California or Texas, probate is required when estates are above a certain value. In California, if someone died on or after April 1, 2022, the probate threshold is $184,500. In Texas, if the value of an estate exceeds $75,000, a full probate administration is typically required.
Many high-net-worth individuals choose to avoid probate during their estate planning by setting up a trust, which transfers ownership of assets into the hands of a trustee. The trustee would then be responsible for distributing these assets to identified beneficiaries according to the terms outlined by the trust creator after their death. Trust administrations are private and not under court supervision, unless there is a trust contest or litigation.
However, a trust is one of only a few alternatives to probate. If not all assets are accounted for in a trust or other estate planning mechanism, they will have to pass through probate in order to be transferred to the new owner, regardless of whether they have created a will or not.
An overview of the probate process: A roadmap for executors and heirs
Probate administration is a comprehensive process that involves several stages necessary for ensuring successful management of the estate. Although estate sizes and complexity vary, the probate process typically includes all the following stages:
- Notifying heirs and beneficiaries of the beginning of probate
- Prepare the petition for probate and supporting documentation
- Validating the will in the court to appoint an executor
- Marshaling and inventorying all assets
- Sending required notices of death to the IRS and other reporting agencies
- Responding to creditor claims
- Updating land records by filing the appropriate and required documents with the county recorder’s office and assessor’s office
- Paying taxes and other expenses related to the estate
- Resolving debts to creditors
- Preparing a fiduciary accounting report to include with the petition for final distributions
- Preparing and collecting receipts from all beneficiaries
- Distributing assets to the beneficiaries
Probate may differ slightly from state to state depending on state laws and requirements. In California, rules around the process are covered in the California Probate Codes. In Texas, probate is covered in the Texas Estate Codes.
The timeline is different for every case—however, probate is rarely quick. The average probate timeline is around 15-18 months. If there are delays or disputes during the process, this timeline is even longer. Still, every situation is unique, so the length of probate will depend on the complexity of your estate and whether any disputes arise in the process.
Step-by-step guide to the probate process
For the most part, the required steps in the probate process are rather straightforward, and involve a few key uniform steps regardless of the value of an estate. The following steps are essential to any probate process.
1. Preparing for probate
Preparing for probate involves gathering the documentation necessary to present to the court. The most important step is finding the original will and any estate planning documents. Ideally, the decedent should have left their original will in a safe location. If you are unable to find their original will, consult their attorney or other family members who were close to them.
In addition to the will, it’s important to gather all other documentation needed to initiate the probate process. Important documentation includes:
- The death certificate
- Bank or investment account statements
- Financial records
- Estate planning documents
- Any communications surrounding the estate plan
2. Filing the will with the probate court
The first step to initiate the formal probate process is submitting the original will to the probate court. This document is crucial for guiding the estate administration process by naming an executor to manage the estate, listing the assets belonging to the decedent, and identifying beneficiaries to receive them.
The probate court will review the will to ensure it is the true original will of the decedent, that it meets validity requirements, and can be confidently used to guide the management of the estate. To assess validity, states like California and Texas require that a will is in writing and signed by a testator who is at least 18 years old and of sound mind in front of two disinterested witnesses.
The court will review the will to ensure that it is not the product of fraud or undue influence. This step is important for ensuring the will outlines the true intentions of the deceased. Using an invalid will could put a high-value estate at risk of having the assets distributed in a manner that contradicts the decedent’s last wishes.
3. Appointing the executor – who was named in a will – or personal representative – when there is no will.
An executor is an integral part of the probate process, as they have the responsibility of ensuring the wishes laid out in a will are carried out, as well as administering the estate. Although an executor is typically identified by the decedent in their will, they must still be officially appointed by the court.
Upon reviewing and validating the will, the court will officially appoint the identified executor. If there is no executor identified in the will, or if the named executors are deceased and/or unwilling to act, the California Court will look at Probate Code section 8461 which outlines the order of priority for appointment as personal representative of the estate.
Because the executor plays such an important role in the probate process, it’s important that the will creator carefully selects a trustworthy executor to name in their will. Understanding how to choose the right executor to manage an estate can make all the difference in ensuring a successful probate and estate administration process.
4. Inventorying the estate: Identifying and valuing assets
After their formal appointment, the executor’s first action is to marshal and inventory all assets left behind by the decedent and gather an accurate value for each. The executor should ensure all assets are accounted for and included in the estate administration process. Having a clear outline of the estate plan will simplify questions about how to distribute the estate to relevant beneficiaries down the line.
A proper inventory of the assets owned by the decedent may include:
- The primary residence of the high-net-worth individual
- Any real estate property, including vacation homes or condominiums
- All vehicles, including cars, yachts, and private jets
- All checking and savings accounts
- Any stocks, bonds, and other investments
- All valuable belongings, like artwork, jewelry, or collectibles
The executor should also account for any international or overseas assets or assets in different states. In these instances, the executor should engage local appraisers and local experts to get an accurate valuation of these assets and have their value converted to the primary currency of the estate.
5. Notification of heirs: Ensuring communication
Once the executor has been formally appointed as the personal representative of the estate, they should begin sending notification to all beneficiaries, creditors, and other interested parties to inform them of the beginning of the probate process. The extent of notification necessary depends on state law.
Notification of beneficiaries and creditors is covered in Texas Estates Code Chapter 308. This section of the estate code highlights the requirement to reach out to all beneficiaries via a qualified delivery method, such as certified mail and posting in a local newspaper.
In California, the notification process is mentioned under California Probate Codes §9050 and §11601. Probate Code §9050 requires a personal representative of an estate to give notice to creditors of the decedent so they can submit a claim for repayment for the estate. Meanwhile, Probate Code §11601 states that a personal representative must give notice of the hearing to initiate probate proceedings to all heirs.
6. Paying debts and taxes: Navigating financial obligations
During their time managing an estate, an executor is responsible for managing all financial obligations of the estate. These obligations may include resolving debts from creditors and facilitating all other expenses related to the estate.
One of the first obligations of an executor is notifying creditors of the decedent’s death and soliciting creditor claims to the estate. Then, the executor will determine which of these claims are valid and address them accordingly.
However, executors are also responsible for addressing any ongoing expenses facing the estate. Additional expenses may include:
- Paying estate taxes
- Paying property taxes on real estate
- Paying outstanding bills or mortgages
- Addressing repairs or maintenance of any real estate properties
- Allocating funds for funeral expenses
- Appraisal fees for estate property.
Some states require an estate tax, although this is not the case for California or Texas. However, there is a federal estate tax that executors should consider. If you have any questions about your obligations to pay taxes for an estate, you should consult a tax professional.
7. Distributing assets: Final steps in the process
After all other debts are settled, the estate administrator or executor can petition the court for approval of the final accounting and petition for final distribution of assets. This petition should include all of the accounting taken from the start of the probate process onward, demonstrating all estate transactions involving assets from the estate so that all the actions taken to resolve the estate are clear.
The executor will use the terms laid out in the will to determine which beneficiaries should receive which assets. If the decedent left no will, then the administrator will distribute assets to legal heirs according to state intestacy laws. Finally, once all of the assets are distributed, the executor can petition the court to close probate.
Probate can be complex for high-value estates, and often raises many questions for individuals who have to navigate it. The following are some of the most common questions about probate from high-net-worth individuals.
Does everyone have to go through probate?
Not everyone has to go through probate, although a large number of estates do. Probate is only necessary for estate property that doesn’t have a beneficiary designation or is left out of the decedent’s trust.
If a person only leaves behind non-probate assets, these assets can be transferred directly to the new owner without the need for probate. Non-probate assets include estate property that has a designated individual to either receive or maintain ownership upon the initial owner’s death.
Examples of non-probate assets are:
- Any assets included in a revocable living trust
- Bank accounts with joint ownership with the right of survivorship
- Bank accounts with a payable-on-death beneficiary
- Life insurance policies with a listed beneficiary
- Real estate property with a joint title
- Vehicles with joint titles
When does property go to probate?
Property goes through probate when it is under the ownership of the decedent at the time of their death. Probate is necessary for transferring ownership from the decedent to the beneficiary. Any property included in a will or still titled to a decedent must pass through probate.
Sometimes property that is jointly owned can avoid probate if it belongs to the deceased’s spouse or there is a joint title with rights of survivorship to the surviving owner. Other assets like investment accounts, bank accounts, or life insurance policies that have a designated payable-on-death beneficiary can also avoid probate. These are all considered non-probate assets.
When does a will go to probate?
A will virtually always goes to probate, as probate is necessary for ensuring that assets in the will are distributed properly to the beneficiaries identified in the document. The only exception to this rule is for small estates below a certain threshold by state law. For high-value states, a will typically goes to probate for the sake of ensuring responsible management and distribution of the estate.
During probate, the court will validate the will, and appoint an executor based on the person identified in the document. After the appointment of the executor, the executor will closely follow the terms of the will in order to carry out the testator’s wishes and administer the estate.
Do I need to go through probate?
There are alternative approaches to estate asset distribution that may allow you to avoid having to go through probate. If you are the owner of the estate, then you can set up safeguards in your estate planning to help you avoid probate. For example, an individual can set up a trust to transfer ownership after their death, establish a joint title with rights of survivorship for real property they want to transfer, or list a designated beneficiary on a financial or life insurance account.
However, if you are a beneficiary and the owner of the estate has passed, these options would not be available to you and you will likely need to go through probate for your loved one’s estate.
Is probate public record?
Probate is a matter of public record, as probate requires posting the information in a local newspaper in order to properly notify beneficiaries and creditors who may have an interest in the estate. This means that much of the information related to the probate proceedings, such as the names of beneficiaries, the assets involved, are all made public.
High-value estates and high-net-worth individuals often have a more significant public profile, which leads to some reservations about the publicity of probate. In some cases, a judge may grant a motion to seal the record to keep the probate private, but this is rare.
An individual can circumvent the publicity of probate during estate planning by establishing a living trust to avoid the open record nature of probate and have assets managed privately by a trustee.
Common challenges in the probate process
Although a probate process is often relatively smooth, especially if there is a clear will to follow and a responsible executor, there are several challenges that can arise. Especially in cases of high-net-worth individuals, the stakes around the probate process can be higher, and the challenges more prominent as more parties want a piece of the pie.
The most common challenges include:
- Beneficiary disputes – Beneficiaries may raise disputes about the terms outlined in the will or the value of the inheritance to which they are entitled. This may be more common in high-value estates where the stakes and the potential inheritance amounts are higher and individuals.
- Complications from complex asset structures – Complex asset structures, like owning multiple vacation properties, a wide array of banking and investment accounts, expensive assets like yachts, or assets that need to be appraised, like jewelry or artwork, can call for a longer or more complex probate process.
- Delays caused by legal challenges – Challenges to the validity of a will or contests to executor actions like property sales can lead to delays in the probate process and legal challenges.
Challenges like inheritance disputes can arise in any probate proceeding but the stakes are often higher for high-net-worth individuals. If you are facing any of the above challenges while probating your high-value estate, you should contact a probate litigation attorney for support.
Empowering high-net-worth individuals to navigate probate confidently
The probate process provides an opportunity to resolve any final concerns and ensure estate property is transferred to the correct beneficiaries or legal heirs. However, high-value estates can be particularly complex, with valuable assets and a large number of interested beneficiaries, making the probate process difficult to navigate.
Our team of estate and probate administration attorneys here at RMO Lawyers is dedicated to supporting executors, beneficiaries, and other interested parties in high-value probate cases. We have decades of experience in the probate process, a deep understanding of probate laws and requirements, and have handled countless cases involving high-value estates. We’ll guide you through probate procedures in order to ensure a smooth, responsible administration of the estate and uphold the wishes of the decedent.
Schedule a consultation with our team at RMO Lawyers to learn more about the probate process and how we can help.
Glossary
Decedent – A person who has died and left behind assets to be distributed to beneficiaries.
Estate executor – An individual appointed by a probate court who is responsible for managing and administering an estate and is named as executor in the deceased’s will.
Estate administrator – An individual appointed by a probate court to manage and administer an estate when there is no will naming an executor, the named executor is deceased or otherwise cannot serve, including because they are disqualified or were suspended or removed.
Personal representative – An overarching term for a person who is responsible for administering an estate, encompassing the role of executors, administrators, and trustees.
Testator – An individual who creates a will to be followed upon their death, explaining their wishes for the distribution of their assets to relevant beneficiaries.