Probate is simply the administration of a deceased person’s estate. Probate involves paying debts (including taxes) and then distributing the remaining assets. (There are also related tasks such as closing accounts, liquidating assets and so forth.) Last month’s article talked about being an executor and how to minimize your personal risk. This month we’ll discuss the overall probate process and some of the associated costs.
Probate Process
A simplified description of the probate process includes the following steps:
- Filing of the will and opening an estate in the probate court.
- Giving notice of the probate proceeding to legal heirs, beneficiaries and creditors.
- Verifying that the will is legal and valid.
- Figuring out the value of the property in the deceased person’s estate.
- Paying the debts of the estate, including taxes.
- Giving the heirs of the estate their inheritances, the gifts that the deceased person left to them in the will.
Probate Rules
An important thing to know is that the applicable estate laws are determined by where the person died, not where the executor lives.
The probate rules tend to vary by state and even by county. An attempt is underway to create a more nationwide approach to probate. It’s called the Uniform Probate Code or UPC. Colorado is one of eighteen states that have adopted these rules.
Under the UPC, there are three kinds of probate. They are informal, unsupervised and supervised formal. They basically differ by the amount of court involvement with informal having the least. The majority of the estates in Colorado are settled under the informal process. (There is also a highly simplified process for estates valued at less than $70,000 that have no real property.)
Probate Costs
First of all, it’s important to know that probate costs are almost always paid by the estate, not by the executor or the beneficiaries.
Probate costs can vary considerably depending mainly on the complexity of the estate and whether it is being challenged by a beneficiary or other interested party. Some common costs in the probate process are:
- Court costs.
- Attorney fees. These are especially common when the executor doesn’t live where the deceased lived. There is no legal requirement in Colorado to use a probate attorney.
- Executor costs (sometimes waived by the executor).
- Accounting fees (preparing tax returns and so forth).
It may be that there will be appraisal fees to establish the value of key assets on the date of death. In some cases a bond will be required to ensure that the executor doesn’t steal from the estate. Finally, there are various miscellaneous costs such as postage, shipping and so forth.
It has been estimated that typical probate costs are about 3-8% of the estate’s value. To help you understand where these costs come from, here are some key probate expenses. Court fees are typically a few hundred dollars. Probate attorneys generally charge about $3,500-$5,000 in Colorado. Colorado does not have a law specifying executor fees. That means reasonable compensation is the rule. In Colorado, that averages about 1.5% of the estate value. Accounting fees can be in the $500-$2,000 range. If a bond is required, that is typically about 0.5-0.8% of the estate value.
Length of Probate
The average time that an estate goes through the probate process is about 6-24 months. Complex estates and contested estates can be open even longer.
Exempt from Probate
Various asset types are exempt from probate. These include life insurance and retirement accounts (IRAs and 401(k)s for example). Joint-tenancy, payable-on-death and transfer-on-death assets also avoid probate. A living trust is another way to shield assets from probate. It used to be that this was aggressively pursued to avoid estate taxes. However, with the high estate tax exclusions that are currently in force ($12.06 million for an individual in 2022), this is less important for many estates. Nonetheless, you can see that probate expenses that are calculated as a percentage of estate value still can make estate value minimization important.
Hopefully this article helps you understand the probate process and some of its costs. If you’d like to talk about the probate process, your estate or go over any other financial matter, we can discuss things in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.