Probate Real Estate
Probate real estate is the proving of a will, or establishing the validity of a will as it pertains to real estate ownership of the deceased.
Probate real estate is the process whereby legal title to the decedent’s property held in the decedent’s name only and not otherwise distributed by law is handed over to beneficiaries and heirs.
Probate real estate is normally a portion of the entire probate process, which also involves payment, and dissolution of debts, and transference of ownership of other property owned by the decedent.
Probate is proven in a court of law, and accepted as a valid public document that is the true last testament of the deceased, determined by judicial process.
How Probate Works
Primarily what happens in probate involves clerical work.
In virtually all probate cases there is zero difficulty, no parties contesting, absence of the usual reasons for proceedings of the court.
Probate, unlike normal court proceedings, almost never requires legal research, a lawyer’s trial abilities, or drafting.
The main function of the probate attorney, and the probate attorney’s secretary, is to fill out a large stack of forms and stay on top of filing expirations, and related procedures.
Depending on the state, the lawyer may only need appear in court a few times. In other states, everything can be accomplished by snail mail.
What do Probate Fees run?
Probate has expenses or fees associated with it.
As with most other legal issues, the lawyers are front and center. This will be your largest expense, and it can often be quite substantial in relation to the value of the estate.
How probate attorney fees are determined can vary from state to state. Some states allow for these costs to be what they deem as fair and reasonable in relation to the size of the estate being settled.
Other states may provide that the probate attorney fees will be a set percentage of the estate. It is not unusual for these percentages to run as much as 5% and more of the total value of the estate.
So, as an example, if the total gross value of an estate is say $500,000, the lawyer fees could cost you as much as $25,000 or perhaps more.
Another potential large fee or expense is for the executor of the estate. However, if the executor is in line to inherit a significant amount from the estate, it is not uncommon for him or her to forego their fees.
Additional fees may be tax preparation fees, appraisers fees, court costs, administrative fees, and other costs.
These legal fees and court expenses are paid from the proceeds of the estate property which would otherwise go to the heirs or descendants who lawfully inherit the property of the deceased person.
How to lower Probate fees
The most impactful way for you to reduce your probate fees is to have your executor handle things himself, without the services of a lawyer. This is called pro se, or pro per.
This idea however, may not be pragmatic, as there are often complex laws, and processes to navigate through, and it may prove to be more of a challenge than a non attorney can handle.
There are publications, and websites designed to assist those that are willing to attempt to avoid using a lawyer for this purpose.
Lawyers can also save you from responsibility from errors, and omissions that a do it yourself encounter may create.
Another way to reduce fees is to negotiate a lower amount or percentage with your lawyer. You may also be able to have your executor handle some of the process, and allow your attorney to deal with the rest.
Problems with Probate
The issues or problems with Probate are time, and extra expenses. It is not uncommon for a court to take up to 2 years to settle a deceased person’s estate. This means it could take 2 years or more for those entitled heirs or beneficiaries to receive their proceeds.
Another big problem is the large fees and expenses that are incurred with the Probate process.
How to avoid Probate
Yes, you can avoid Probate, and it’s related headaches, and it’s often exorbitant expenses and fees.
The single best way to avoid Probate is to create a Living Trust. A Living Trust places your property and other assets in a trust. A will simply distributes your property and assets.
Because with a Living Trust your assets are already distributed to a trust, which your designated Trustee manages for the benefit of your heirs, and beneficiaries, probate can be completely avoided.
Another huge benefit to setting up a Living Trust versus allowing your estate to go through Probate, is privacy. A Living Trust, unlike a will, will not be made public upon your death.
With a Living Trust your estate will be distributed and disbursed in private. With a will(Probate), all of your assets will be distributed as part of public record.
Another benefit of having a Living Trust is, should you become incapacitated, or ill, your Trustee can immediately take over your affairs.
With a Living Trust, however, your personally selected Trustee can handle your affairs with no court intervention, and because the trust is a revocable one, you can retain control yourself, if you challenge your incapacity.
Another way to avoid the time consuming, and costly Probate process is to designate beneficiaries on your bank accounts, investment accounts, and retirement accounts.
Pension plans, IRA accounts, 401K plans, life insurance policies, and stocks and bonds, are all considered ‘payable on death accounts.’
Banks, insurance companies, and brokerages will provide payable on death forms for you to fill out if you request them. This simple act can save you and your beneficiaries a lot of stress, time, and money.
Another terrific way to keep your property from the clutches of Probate, is to use Joint Tenancy with a Right of Survivorship or similar forms to allow you to hold your property jointly with a spouse, or significant other.
Generally speaking, the larger the estate, the greater the need for a Living Trust. Talk to your tax planner, your accountant, or your investment professional to see if a Living Trust is suitable for you, and your situation.
Probate Real Estate Investing
The first step in probate real estate investing is finding the deals. You can find these deals in the newspapers. They are in the notices section, the obituaries, and in the real estate ads. You can also find them in marketing areas where there is a large elderly population.
You can also go to the county courthouse, either in person, or on their website. The homes/estates in probate will be listed for you. You will likely need the assistance of the clerk’s office to help you find the probate information you need at the county offices.
It is important for you to know how to value properties. If you aren’t an active real estate investor in a certain area, I suggest you hire the services of a good real estate agent, or a real estate appraiser.
These folks know what homes sell for in certain areas, and can also assess the value of a particular property based on amenities, and condition.
Once you find a home or estate that you are interested in, it’s time to get in touch with the executor of the estate. The executor is the person appointed to handle the affairs of the estate.
This is often a very stressful, emotional time for the family of the deceased. You can provide a much needed service to the family of the deceased by simplifying the process of the estate sale for them.
By agreeing to purchase the home and the other estate property, you can make this an easy and quick solution for them. This way they don’t have to deal with the headaches, and hassles of selling the property. What the family wants is quick cash, and no stress.
After you have determined that the home is worth looking at, set up a viewing with your realtor, or directly with the executor. It is important to build a rapport with the executor. This person holds the key, pun intended, of your success with the estate they represent.
Once you have completed your due diligence, which includes determining the current state of the condition of the property, what comparables in the area have sold for recently, and the state of the overall real estate market, you can put your offer together.
Once again, I recommend the services of a good real estate agent to assist you with this. I also recommend making any offer contingent upon inspection, as many times the ‘surface’ condition does not reveal all of the flaws of a property.
If your offer is accepted, the property will close like any other type of residential real estate transaction. The paperwork will go to the title company, and they will do a title search, provide title insurance, and set a date for the closing.
Many real estate investors believe that probate is the best area of real estate investing for various reasons. The primary reasons are that probate usually has the least competition with other real estate investors, and that bargains can be had as grieving family members are often willing to take less money to effect a quick sale.
Probate real estate investing is definitely worth looking into if you are serious about your real estate investing career.