Should You Try to Avoid Probate?
Every summer my family visited my maternal grandmother. On a table in her living room, next to Whitman's Leaves of Grass, was a copy of How to Avoid Probate by Norman F. Dacey. Published in 1965, Dacey's book went through five editions and sold millions of copies. Dacey was a ruthless critic of the probate system, calling it "[a]lmost universally corrupt" and "essentially a form of private taxation levied by the legal profession upon the rest of the population" (Dacey, How to Avoid Probate (1st ed., 1965) at 15). Dacey's book is at least partly responisble for popularizing the practice of avoiding probate through the use of revocable trusts (see Why Might You Want a Revocable Trust?) and for setting off a series of reforms of the probate system in many states.
I wasn't old enough to experience firsthand how bad probate was in 1965, but it is not so bad now. Avoiding probate is not always necessary or advisable.
We can identify three different levels of the probate process in both Indiana and Illinois.
The Three Levels
The first level is a procedure that makes it possible to avoid probate altogether. It is available for small estates, that is, for probate estates valued at $50,000 or less in Indiana. (The limit is $100,000 in Illinois.) If an estate qualifies for this treatment, a person who is entitled to assets that are part of the probate estate (either through a will or through the law of intestate succession if there is no will) can take control of those assets by means of a small estate affidavit. Such an affidavit, if it is in proper form and duly executed, must be recognized by the holder of those assets. This means, for example, that a bank would have to honor such an affidavit, though the bank would be within its rights to try to assure itself that everything was on the up and up. (If the bank were to receive competing affidavits for the same assets, for example, the bank would have to sort the matter out before turning assets over to either claimant.)
The second level involves the probate court, but for the most part the court leaves the administration of the estate up to the personal representative (sometimes called the "executor"). The probate court is involved in opening the estate and approving the appointment of the personal representative. Once approved, the personal representative can go about the business of gathering assets, determining just debts including any death taxes that might be due, and preparing for the distribution of assets. At the end of the process, the personal representative must file a closing statement with the court. In Illinois the closing of the estate requires an order of the probate court. If all goes well, administration of the estate occurs without much court involvement. The abbreviated procedures of level two can result in substantial savings in attorney's fees compared to level three.
The third level is the full-blown process of probate. The probate court is involved not only in opening and closing the estate and stepping in when asked to do so by interested parties; with level three, the probate court supervises every stage of the administration of the estate.
How Much Will it Cost?
This quick sketch of the three levels of probate puts us in a position to consider one of the first questions you may have about the process: How much will it cost? The likely cost of the probate process is lowest with level one, higher with level two, and higher still with level three. Even at level one it is often advisable to consult an attorney to make sure that level one is appropriate and to have someone to give advice as needed about the process and answer questions that might come up. In many cases, this attorney involvement can be minimal, but there is no way to predict in advance whether or not complexities will be encountered, or the extent of those complexities.
Most people who seek to go the level two route will hire an attorney to appear in probate court for the opening of the estate, to prepare and file the closing statement (or, in Illinois, to handle the court appearance for the closing of the estate), to give advice along the way on the tasks and responsibilities of the personal representative, and to handle any other proceedings that turn out to be necessary. (I say "most people" because it is at least theoretically possible to appear pro se—that is, for oneself—though it is probably not advisable in the vast majority of cases.) The extent of the lawyer's involvement in the level two process depends to a large extent on the amount of administrative work that the personal representative is able and willing to do. The personal representative is responsible for marshalling assets, determining and paying just debts, determining death taxes (if any) and seeing that they are paid, distributing assets, and keeping a record of the process of administration. Much of this work can be done by the personal representative with occasional advice from an attorney. The personal representative might, for example, have the attorney prepare estate tax returns (if the filing of such returns is necessary or advisable), but most of the work of gathering the data that the attorney will need can be done by the personal representative. The personal representative may also consult the attorney on the kind of accounting and record keeping that is advisable and may ask the attorney to prepare the documents that need to be filed with the court at the end of the process. But, again, most of the actual work of administering the estate (and the generating of the data that go into these documents) can be done by a personal representative who is able and willing.
All but the most intrepid (and probably foolish) of do-it-yourselvers will hire an attorney for level three. If negotiating level two pro se is comparable to extracting your own wisdom tooth, then negotiating level three would be like removing your own tonsils. It might be possible, but it is certainly not advisable. The extent of the attorney's involvement, and the consequent expense, will be determined by the complexity of the probate process. If you are at level three because the validity of the will or the interpretation of its provisions are contested, then the attorney's involvement is likely to be substantial. If you are at level three because an interested party has requested it but there are no substantial contests to the validity of the will or the interpretation of its provisions, then the amount of time the attorney will need to devote to the matter, the number of court appearances that will be required, and the resulting cost will be less. But level three will in any case require going before the court on multiple occasions for approval of the personal representative's actions.
What Can You Do to Control This?
If you decide to go the probate route (that is, if you choose to not use a revocable trust), the best way to increase the likelihood that you can take advantage of level two as opposed to level three is to have a well drafted will, which can dramatically reduce the likelihood of challenges to validity or interpretation. Even a well drafted will does not however guarantee that level three will be avoided. Interested parties are free to object to independent administration, and if they can convince a court that it would be in the interest of the estate or other interested parties to require supervised administration, then "Hello, level three!"
If you decide that you want to avoid the probate process, you should consider creating a revocable trust and transferring enough of your assets to it so that the remaining probate estate is able to qualify for the small estate procedure described above as "level one." It is customary to execute a simple will in conjunction with a revocable trust to govern the distribution of the assets that remain in your probate estate. (See Why Might You Want a Revocable Trust?.)
Pros and Cons
I have tried with my descriptions of the three levels to give you some idea of the complexities and some basis for thinking about the possible costs of probate. It can be expensive—more or less, depending. It is a process that is subject to delays, again, more or less, depending on the situation. In any case, levels two and three take time. In contrast, a trustee can get access to trust assets immediately, or in a matter of days, in many cases. Another disadvantage of probate—for some, not for others—is that the process is public. The public may not be interested, but records of probate proceedings are (in most cases) open to public inspection. In contrast, trust administration is a private matter.
There are also advantages to probate proceedings. Probate starts a relatively short statute of limitations running on claims against the estate. A claimant has a limited time to bring the claim. For many people this is not an issue because they are able to predict the constellation of likely creditors, the sorts of claims they will have, and in light of the way they have lived their lives and conducted their business affairs, the threat of unknown claims is simply not a significant concern for them. For others however, and this will include the members of certain professions that run a high risk of malpractice claims (even, it should be said, where there has been no malpractice), it might be advisable to go through probate in order to have the peace of mind that comes from knowing that claims will be cut off sooner rather than later. How soon depends on a number of factors. Most claims will in any case be barred nine months after the decedent's death, in Indiana (two years in Illinois). Just what claims can be asserted and when, against a trust or persons who have received distributions from a trust is a more complicated question. As a general rule of thumb, one should not think of a revocable trust as a way to avoid creditors. Anyone who is concerned about shielding assets from creditors should talk the matter over with a lawyer.
Another advantage of going the probate route, in some situations, is that one doesn't incur the cost of setting up and funding a trust. Drafting a revocable trust is, in many cases, not much more expensive than drafting a simple will. But the trust must be funded before it becomes effective (that is, property must be transferred to the trust, or, to put it another way, assets must be retitled in the name of the trust). Much of this process can be done by the grantor of the trust (rather than the attorney), but it takes perseverance and can be time consuming. If you are planning to let the attorney do this it could get expensive. You will want to weigh the costs and benefits of different approaches to your situation. For more on this subject, see Why Might You Want a Revocable Trust?.