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Probate for Inheritances

Probate can be costly in terms of time and money but it may be a necessary step before assets can be transferred to beneficiaries.

Probate is a legal process for settling an estate according to the will of the deceased. The deceased’s taxable estate is made up of all of the assets in which he or she holds an interest at the time of death, but only assets held individually in his or her name will generally have to go through probate.

The probate process varies by state—many states offer a quicker, less expensive option if the assets subject to probate are below a certain value (for example, $25,000 or $50,000).

Probate is also public record, so it decreases the level of privacy of the estate.

Some assets, such as investment accounts with transfer on death (TOD) designations and retirement accounts, allow for the naming of beneficiaries and, therefore, may transfer to beneficiaries without going through the probate process.

Assets with joint ownership with right of survivorship pass to the second owner when the first owner dies. If there is a TOD on the account, the assets will only go to the beneficiary if both joint owners pass away. In either case, the asset will not likely go through probate.

When someone passes away without a will or intestate, assets pass to heirs at law via the probate process according to state intestacy laws.

There may not be much you can do to avoid going through probate once a loved one has passed away, but it helps to understand the process as you work with an attorney or tax advisor.

Which assets pass through probate

Generally speaking, any asset that allows the owner to name a beneficiary will not have to go through probate, including most assets once they are placed in trusts. The following table gives a general idea of which assets are and are not usually subject to probate in the most common scenarios.

Usually subject to probate Not usually subject to probate
Cash, cash accounts without TOD designations Accounts that allow for the naming of beneficiaries (IRAs, 401(k)s) or TOD designations (investment and some cash accounts)
Personal property, including valuable items Trusts, including assets placed in trusts that might otherwise have to go through probate (cash, real estate)
Real estate Insurance policy proceeds
Assets that allow naming of beneficiaries, but for which none have been named Assets with joint ownership with right of survivorship
Assets held as tenants in common

This means, for the assets not usually subject to probate, if you are a named beneficiary you will likely be able to assume ownership sooner and may save money on court costs and attorney fees.

It's important to note that, generally, even if a named beneficiary conflicts with information stated in the will, the named beneficiary will still receive the assets over the individual named in the will.

What happens if the beneficiary is not named or is unclear?

If the beneficiary designation is missing or rules of succession for the asset don't help to clarify the matter, then the asset is transferred according to the will, if there is one, or to the deceased's estate. In either case, the asset will likely have to go through probate, incurring costs and delaying the transfer of the asset.

Other laws that vary from state to state may apply and dictate how the assets transfer. If there is any doubt associated with the beneficiary, the question is resolved through the probate process.

As always, you should discuss your specific situation with your attorney or tax advisor.

The impact of probate

Because every inheritance is different, it’s hard to predict how much probate will cost and how long it will take. The cost will vary by the size and makeup of the estate, the laws of the state in which the deceased lived, and the will (if there is one and how it was written).

Probate costs can include:

  • Court fees
  • Appraisal and valuation fees
  • Account fees
  • Fees paid by the executor
  • Your attorney’s fees to represent you in the process

The typical cost of probate usually adds up to a range of about 2% to 5% of the value of the assets that go through the process.

Probate also delays the transfer of the assets. The delay varies by state and the size and makeup of the estate; some states have a minimum, such as four months, and some states can take more than two years to finalize the process.

Next step

Getting organized
Know what you need to do to ensure a smooth settlement process for the estate.

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transfer on death (TOD)

a provision of a brokerage account that allows the account’s assets to pass directly to an intended beneficiary; the equivalent of a beneficiary designation

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joint ownership with right of survivorship

ownership arrangement in which two or more individuals own the whole of an asset equally; when one owner passes away, assets pass to the other joint owner(s)

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intestate

describes the death of an individual with no will; all property and assets that would otherwise be governed by a will are passed to beneficiaries according to state intestacy laws

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heir at law

individual who is eligible to inherit the assets of someone who died without a will; determined by state intestacy laws of the state of the deceased's primary residence

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tenants in common

form of joint ownership of an asset in which ownership can be unequal and one owner's interest can be sold, mortgaged, or willed without the consent of the remaining owner(s); there is no ability to name a beneficiary, so interest in these assets will always fall under the deceased owner's will

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rules of succession

state intestacy laws that determine which survivor(s) inherit the estate of an individual that died without a will

Questions?

Speak with an inheritance specialist.

The tax information and estate planning information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Fidelity does not provide legal or tax advice. Fidelity cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Fidelity makes no warranties with regard to such information or results obtained by its use. Fidelity disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.

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