Ethan R. Okura
Hawai‘i Herald Columnist
In 2020, the United States’ death rate rose by 15.9% compared to its 2019 number. COVID-19-related deaths amounted to over 375,000, which accounts for most of that increase (11.3%). With these extra deaths, many senior citizens and even younger clients are concerned about probate. Many people have died, then had their property dragged through court for years before loved ones could inherit it. In this month’s column, I will explain what probate is, when it is necessary and how to avoid it.
Probate is a court proceeding. In Hawai‘i, probate becomes necessary when a person who dies owns real estate in his or her name alone. Probate is also required when the total value of all “personal property” (i.e., any asset that is not real estate) owned in the deceased person’s name alone is worth more than $100,000. If a person dies with only personal property worth less than $100,000, probate is not necessary. Also, if a person dies with real estate worth less than $100,000, the court can handle it as a “small estate,” which is a form of probate. However, the court charges 3% of the value of the estate for handling a small estate. A $100,000 small estate would cost $3,000 in court fees plus related costs (such as postage costs and paying the newspaper to print a notice to potential creditors).
The law requires probate for a good reason. If a person dies, the law wants to make sure that the property goes to the people who are supposed to inherit it. The probate law requires that a written notice be sent to the persons named in the will and also to the persons who would have inherited if there had been no will. Each has the right to see the will, see what was owned and make sure that the assets are divided the way the will says the assets should be divided.
In a probate, the court appoints someone (usually a spouse or child) as “personal representative” (in the past, known as the “executor”). The personal representative has the power to gather the assets of the estate, pay its bills and distribute the assets according to the will. If there is no will, the assets are distributed according to the “laws of intestacy.” These laws spell out who inherits assets when there is no will. If there is any problem during the probate, the court can make sure things are done fairly.
Although probate protects heirs from being cheated, it is still a cumbersome process. A simple probate takes eight months to a year — or even longer — to complete. Some probates go on for many years before the assets can be inherited. There are at least three reasons why a probate can take a long time:
• If there is real estate that must be sold, and if that real estate turns out to be difficult to sell, then the probate could take longer than usual.
• The lawyer might be neglecting the case. When a lawyer has several cases keeping him busy, the probate case is often the one that is put off until later.
• The personal representative may be slow in responding to the attorney’s requests for information or documents.
Certain assets do not have to go through probate when a person dies, even if they are worth more than $100,000. First, assets held by two or more people as “joint tenants” or “tenants by the entirety” will go to the survivors without probate when one of the owners dies. This is true for real estate, checking accounts, savings accounts, stocks, etc. If two or more people own real estate together, look at the deed. If it has the words “joint tenants” or “tenants by the entirety,” it will not have to go through probate until the last owner dies. However, if the real estate is owned as “tenants in common,” then the share belonging to the person who died has to go through probate.
Second, assets that have a named beneficiary do not have to go through probate. These include life insurance, annuities, IRAs, 40l(k) plans, savings bonds and “pay-on-death” savings accounts. As of the summer of 2011, it also became possible to name a beneficiary for Hawai‘i real estate by recording a “revocable transfer on death deed.”
One of the most popular ways to avoid probate is to have a Revocable Living Trust. A Revocable Living Trust allows you to have complete ownership and control over your assets. When you die, your assets go to the people named in your trust, without probate. Instead of ending the trust when you die, it could also continue on after you pass away and protect your assets for the people named in your trust. They can use the trust assets, sell them and re-invest the assets — or even take the assets out of the trust. However, as long as the assets stay in the trust, that trust can protect them from creditors and divorces. A trust is generally a better way to avoid probate than joint tenancy or naming transfer-on-death beneficiaries.
© OKURA & ASSOCIATES, 2020
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Ethan R. Okura received his JD from Columbia University in 2002. He specializes in Estate Planning to protect assets from nursing-home costs, probate, estate taxes, and creditors.
This column is for general information only and is not tax or legal advice. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate-planning specialist.