In this blog post, we explore the complex process of final distribution of estate assets, including the steps involved and important considerations to keep in mind. Whether you’re a beneficiary or executor of an estate, understanding this process is crucial for ensuring a fair and timely distribution of assets.
When a person dies, the process to distribute their assets is not always straightforward. Larger estates suffer under their own weight when it’s time for the probate process to begin.
Assets must be correctly evaluated, often by accredited, specialized, and even court-appointed experts. There are waiting periods and grace periods for creditors to stake a claim against the estate. And that’s without mentioning the additional time cost imparted by family troubles and the interpersonal drama that accompanies multiple wills, multiple beneficiaries, and multiple conflicting stories.
Not all estates are complex. In fact, most people will enjoy a relatively simple probate. But in the cases where delays can occur, they can draw out the probate process over several years. Here’s what you need to know.
How Are Assets Distributed After Death?
When a person dies, everything they own must be distributed among the living. There’s usually three ways to do this:
- Outside of the probate process.
- Through the probate process.
- Before death.
The probate process begins when someone who knew you – a loved one, or even your lawyer – utilizes your death certificate to petition the start of probate in the county of your residence. A date is set for probate to begin, at which point this person will need to inform both potential creditors and every known beneficiary of your death, and the fact that probate is beginning.
Probate is the process by which a representative is chosen for your estate – your executor – and the process by which your last will and testament is legitimized and executed. The larger and more complicated the estate, the longer the probate process. Everything not settled outside of probate (through a beneficiary designation, or otherwise) will pass through probate.
The average length of a probate process depends on multiple things:
- The size of your estate.
- The complexity of the assets within your estate.
- The state you lived and died in.
- The location of each of your assets.
- Whether you owed any money, to whom, and how much.
- The number of people you are bequeathing assets to.
- The clarity and consistency of your estate plan.
Some probate processes can be expedited if they fit the necessary criteria – in California, for example, people can opt to use a small estate affidavit for estates with a total value of about $166,250 or less, provided they do so before probate begins. Larger estates can take several years to completely resolve and distribute. The following are a few ways in which these estates may delay the distribution of assets.
Rare, unusual, or strange assets take longer to evaluate. Putting a price tag on everything is one of the first tasks of any probate process, to get a better idea of what the estate’s total value is. It’s not enough to call in a random expert, either – there are court-approved processes for the evaluation of rare items.
Assets in Faraway Places
If you lived in California, died in Florida, owned a mansion in upstate New York and had a vacation property in Vancouver, your probate process could look exceptionally difficult. Owning assets across state and country borders requires ancillary probate processes, and the cooperation of different courts. That means more paperwork, more bureaucracy, and more time.
Nearly every estate must leave time for creditors to come forward and lay a claim against the estate for an unpaid debt. Unresolved debts can complicate the probate process, as they eat into the estate, leaving less for the beneficiaries.
Estate taxes come to mind, but these affect only a fraction of Americans. Income taxes may be more relevant – an estate is a tax-paying entity, and must pay income taxes on any income it generates throughout the years during which probate is active. In certain states, the probate process must also account for state estate taxes and inheritance taxes (California has neither, for example).
The more people you must distribute to, the more time it takes to resolve the estate. Not only will the appointed executor need to continue to manage the estate for the duration of the probate process, but they must keep in touch with each beneficiary, arrange to transfer and bequeath assets, and resolve conflicts (or refer them to the court).
If an estate plan stands on shaky ground, it may be easily contested. A contested will can spell a huge delay, as it means time is spent investigating the claim and figuring out whether any abuse or fraud has taken place.
Avoiding Delays in Distribution
You can avoid delays in distribution, even with a larger estate, through a careful and comprehensive estate plan. Account for problematic assets by singling them out with beneficiary designations or trusts. Be clear with your family about your intentions. Keep your documents tidy and accessible to the right people. Prepare contingencies, especially for your digital data. Keep up with current tax laws to avoid paying estate taxes on your final estate plan.
Assets distributed outside of the probate process are usually those with an attached beneficiary designation. Think IRAs or 401(k)s. Most retirement accounts ask people to name a beneficiary or multiple beneficiaries for the remainder of the account. Life insurance policies are another great example. A life insurance policy is a payout you never expect to receive. So, you must name someone to whom it will be paid out.
You can settle the matter of certain sensitive assets before death through instruments like trusts. Unlike a will, a trust goes into effect immediately – and unlike a will, it’s more of a legal entity than a set of instructions. Trusts can hold assets for you, for the purpose of distributing those assets to your loved ones after death.
You can manage your own trust as a trustee, and name someone else to be a successor trustee after you die. Their job is to fulfill the trust’s purpose by bequeathing whatever was funded into it towards your named beneficiaries. Because the contents of a trust exist outside of your actual ownership at the point of death, they are not subject to probate.
However, unlike a car with a transfer-on-death deed or a retirement account with a beneficiary designation, the contents of a trust are technically transferred out of your ownership while you are still alive.
Stay away from cookie cutter estate planning solutions. Larger estates, in particular, require a nuanced and individualized estate plan.