What is Probate? Probate is simply a legal process that any estate with an asset worth more than $75,000 must go through. Inevitably, you’re going to hear from Forbes and Motley Fool and The Wall Street Journal and your preferred regional newspaper about how horrible it can be. And, we’re not going to lie to you, many times it is horrible.
We don’t believe in pulling the wool over your eyes. We want you to make the most informed decision that you possibly can. That’s why we’re going to explain to you what can happen if you don’t do appropriate estate planning. And then we’re going to explain what you need to do to avoid making probate a difficult, expensive and painful process.
How Much Does Probate Cost?
Let’s start out by explaining the why. There is no hard and fast answer to how much probate costs. We’ve seen estimates from as low as 2% to as high as 10% of your estate.
That may not seem like a lot on it’s face but remember that includes all your assets that don’t have beneficiaries listed on them. So, that excludes things like your IRAs, 401(k)s and life insurance. What it includes though is your house, any land you own, any stocks that you own, your cars, and any of your personal property.
Again, that may not seem like a lot, but it WILL start adding up. Take for example this scenario…. the median cost of a house in the state of Minnesota is roughly $250,000. Depending on where you live that could be substantially higher or lower, of course, but we’ll use that as a starting point. Add in your two vehicles at $15,000 each and the value of your personal property (jewelry, lawn equipment, clothes, etc.) at roughly $50,000. Assuming you don’t have any bank accounts or investment accounts of any value, your estate is suddenly worth $330,000.
Between court fees, attorney fees, executor fees and various other expenses, your estate could be reduced by between $6,500 and $23,000. Now, depending on where you’re at in your life, that could have some pretty sobering effects. If you have minor kids, that means they will get that much less to support them. If you’re plan is to donate your money to charity or church, they will get that much less to do their good deeds. Whatever it is you want, the person or people that you want to benefit, will get much less benefit. Add to that, there’s always the potential of infighting about who should get what and it doesn’t lead to a pretty picture. You can calculate the size of your estate on your own and use this chart to approximate the cost of your own situation.
Probate Cost Chart
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That may not be fair, but that’s the reality. This is what we call “THE BAD PROBATE”.
So, now that we have also sufficiently worried and scared you, what can you do? Like we said, it doesn’t have to be that way. Proper planning and continual planning will help to avoid some of those headaches. So, what does that mean?
Proper planning is different for every person and family. To start out with, you need to get all your estate planning documents in order. This is going to include a will and maybe a trust. A good estate plan will also include a financial power of attorney and health care directive. They won’t do anything in terms of the probate but should be included. Depending on your situation and your goals, you may also need to have a trust. Additionally, you’ll need to make sure that all the beneficiaries on your life insurance and retirement accounts.
Additionally, you should review your plan every 3-5 years to make sure it still meets your wishes and evaluate your current situation. You may or may not need to change anything, but, at the very least, you should review it.
Again, probate can be a scary process for those you leave behind. It doesn’t have to be though. Leaving instructions for what you want done should make you sleep easier at night. You can know that your wishes will be known and followed, and you can also know that you’ve made things easier on those you care most about.