With the average cost of the full process being $12,400 when complete, probate is a huge strain on the wallet of many families during a time of grief.
Not only that, it carries the potential for family conflict, 35% of families say they have experienced the conflict or know, personally, someone who has as a result of these processes.
Despite these hardships, what is probate real estate? How can the process be made easier? Or simply avoided if not necessary?
Probate By Definition
The term probate refers to two interrelated things. It is the process of reviewing a will and determining its validity, as well as the process of transferring the assets outlined within, said will.
It is the process of the administration of an estate of the deceased, from the dispersal of inheritance to sales of real estate.
Length of Process
On average probate will take approximately one year for most estates, though it generally ranges anywhere from six months up to two years. The process is shortened considerably when a detailed will is present.
Length can also vary depending on state laws, State law will to only affect how long the process will take but also how soon after the passing the probate process must be started.
Some other factors that contribute to the length of probate include;
- Tax and/or debt issues
- Number of heirs
- Contested details
No matter why the exact reason, probate in real estate is a process that is best navigated safely and slowly.
Breakdown of the Probate Process
With a will, the deceased or testator has left documentation with specific instructions on how to handle the estate and who should be doing such administration. This person is the executor, often a financial advisor, and begins the probate process.
Locate a probate attorney to work with
The probate process is involved and complicated and any help you can have will ensure a far less stressful experience.
You may not plan on finding a probate real estate agent to sell any property but having an attorney is all but essential during any stage of the process. They will be able to advise you on specific laws and regulations.
File the proper petition
You will officially begin the process by filing a petition for probate in court local to where the deceased individual was living.
It should be noted that there may be the need to through probate in any county that property is located before making any sale on said property. This only really comes into play when an estate is spread through a variety of geographical areas.
Evaluate the Details of The Estate
This step is where a lot of the heavy lifting occurs. After the petition is filed, all important documents regarding any details of the estate need to be gathered to move forward.
The specifics can vary from state to state but generally includes;
- Estate Planning Documents
Applying for a Grant of Probate
A Grant of Probate gives an appointed representative authority to manage the deceased’s estate. By having this document, any financial organization will know that the individual has a legal right to be doing such.
This is granted when the proper application is filed by a person properly named in a will. If there is no will or the named person chooses not to accept the appointment then there will be a secondary choice made through Grant of Administration.
In the cases where no will is available, the grant of administration is issued to an individual chosen by the court.
Filing an Estate Tax Return
Estate tax is taxation on the total financial assets of the deceased before they are distributed to any beneficiaries.
Potentially an inheritance tax return as well, although there are only six states that impose such tax and they are;
- New Jersey
There is an important difference between the estate and inheritance tax, who is held with the responsibility of paying the bill. While the estate tax is handled by the executor, each of the beneficiaries pays a separate tax on their received amounts.
Paying Off Debt
During the process of evaluating the estate, you will collect information about any existing debt owed still by the deceased. You must reach out to any of these creditors about paying off the existing amounts.
By using money from the estate you can pay off their claims as well as any other debts such as personal loans.
Transfering of Assets
After all other expenses are taken care of, that is debtors are paid, taxes are paid, and legal fees are addressed, filing for transfer of assets can begin.
The legal transfer is according to the will provided and the assessment of the estate that was done by the probate court.
If there are no heirs and no will any remaining assets, after paying debts down and taking care of legal fees, will be transferred to the state’s ownership.
High Level of Expenses
The process is very expensive and when it has started there is little you can do to reduce the time it takes. If you are not well prepared this can be a long process, continually draining money from the estate.
It is estimated that the cost of completing the entire process can be anywhere from 3% to 7% of the entire value of an estate. With proper planning before the passing of the individual, this cost can be kept to a minimum.
Notice to All Involved Parties
The only individual that can start the process of probate is the executor that has been named in the deceased’s will. No other person has the right to do such.
If the executor does not wish to administer the estate themselves they can permit their probate attorney to operate on their behalf, however.
What is Probate Real Estate Intestate?
An estate can be deemed intestate for either of two reasons; a person dies without having a will made up or there is a will that is presented to the court and the will is deemed invalid.
These estates will still enter into the probate process with some important differences, the main being an administrator being appointed by the court system. This administrator acts in the same way an executor would in a standard situation.
This appointed individual is also responsible for finding living relatives that include; children, spouse(s), and parents. Once these relatives are located the court will draw up an assessment and distribute the estate.
When an estate is deemed intestate it also will mean that the court will control the entire process of the sale, from appraisal to bidding and eventual closing on the property.
Making the Sale
Probate real estate can end up being a very lengthy process depending on the state and market you are selling the property in. The first step of making the sale is determining if it is a formal or informal sale.
Formal Probate Real Estate Sale
The executor or administrator will begin by having a house inspection performed. From this, they can get an appraisal which will serve as the basis for the initial asking price on the property.
It is required that the property sells for no less than 90% of the estimate received from the appraisal.
There are specialized real estate agents that work with probate real estate, they hold CPRES or Certified Probate Real Estate Specialist Certification. These are the best to pair with as they have specific knowledge of specific court regulations.
Depending on the state this can be especially important, bidding regulation can get very complicated, and having an expert to walk you through the process can relieve a great deal of stress.
Informal Probate Real Estate Sale
A petition can be filed, when a will is present, to make a sale independently without the involvement of the probate court.
This process is much easier and much less expensive as you are not having to deal with court fees and heavy court regulations. It is much more like a standard real estate process.
While the process is available the way of going about it differs from state to state, it is important to confirm with your local regulations.
It should be noted that when buying probate real estate you may want to put a little more time into researching any property. This is because you would be working with either the court or an executor.
You rarely would be interacting with someone that lived in the home or property itself. Because of that, you have less first-hand knowledge of the property and there are more levels to dig through for documentation.
The extra effort can be worth it with money that can be saved though.
Avoiding the Probate Process
There are cases where the probate process is not necessary or that it can be avoided altogether. These do require some planning ahead as they can only be established before passing.
Seeing as the probate process is a long and in many cases expensive one if there is a case where it can be avoided it often is in the favor of the parties involved.
Revocable Living trust
To avoid probate all of the assets have to be placed into a revocable living trust. There is a secondary benefit to establishing this trust, you will not have to worry about probate in real estate sales.
The trust is broken into three phases;
- The owner is well and living
- The owner becomes mentally unfit
- Finally, the owner has passed away
The first phase is when the trust is formed, all documents are filed and assets are filed and managed by the initial trustmaker. They have full control until one other is appointed “trustee”.
For the second phase, there should be a successor trustee that has been named, they are now managing the finances and assets of the trust after the trustmaker has been deemed “mentally unfit”.
Finally, after the named passes the successor pays all of the final debts and settles taxes. The remaining assets in the trust are distributed according to the documents created during the trust’s formation.
There is the process of both POD and TOD, payable on death, or transfer on death respectively for many financial accounts. These include IRA, 401k, and various bank accounts.
With these accounts, you can name beneficiaries that would either inherit the money contained or gain control of the accounts, upon the passing.
There is also what is referred to as a “life estate deed” which allows the passing of real estate onto named beneficiaries. By utilizing these you can avoid the probate of real estate.
By not having to sell through the probate courts you avoid having to pay extensive legal fees and can work within a much more forgiving timeline.
There are also cases in that probate is simply not required, if an estate is less than $75,000 in value probate can be skipped entirely. Also, if the debt the deceased holds is larger than the value of the estate the process can be bypassed as well.
Probate Real Estate Doesn’t Have to Be Overwhelming
You were asking, what is probate real estate, and now you know how to not only deal with it but potentially take advantage of systems of support available to you.
Given how complex the probate process can be it is important to take advantage of any of the ways to help reduce the time and expense of it. The easiest way of doing this is to have a will present.
Remember, most of these items need to be put in place before the person dies so proper planning is essential to make dealing with probate a smooth process.
No time is too soon to start planning. Click here to come read further material with iBuyers and take advantage of further resources to help with that process.