What is Probate? An Introduction for Foreign Nationals
Probate is the official process, supervised by the local district court, of winding down the estate of a deceased person and transferring the assets to the heirs and other beneficiaries.
In most cases, ownership of the deceased’s assets does not pass automatically to the heirs upon death.
One very important exception is joint ownership with right of survivorship, in which case the share of the decedent “vanishes” and the surviving joint owner is now automatically the sole owner.
Another exception is, for example, in the case of inheriting real estate in Virginia. If the sole owner died intestate (without a testament), ownership passes automatically to the heir(s). In this case only a real estate affidavit needs to be recorded in the probate division of the local court.
In most other cases the court designates a person to be the personal representative (or executor) of the estate. The estate itself is considered to be an entity in itself (similar to a juridical person in civil-law countries). This means that the estate will be assigned a taxpayer identification number and will pay taxes on any income over $600.
The personal representative pays the decedent’s outstanding debt, files all tax returns, notifies all authorities, sells assets if needed, and identifies and distributes the assets according to the testament or the local laws of intestate succession.
In Maryland and in Virginia the personal representative files a list of all financial transactions to the probate court for approval.
The personal representative’s fee is set by the law; it is approximately 3 % of the value of the estate.
The probate process also involves a certain fee to be paid to the court. This fee is a small fraction of the value of the probated assets. It is generally not worth mentioning, except in the case of very large estates (USD 5m+).
You might have heard the advice that you need to set up a revocable trust in order to avoid paying this probate fee. Keep in mind that nowadays in the United States the vast majority of the assets of a decedent does not pass through probate. Instead, the ownership changes as a result of joint titling, beneficiary designations or a payable-on-death designations. The probate fee will not apply to these assets. The vast majority of cases does not warrant setting up trusts only in order to avoid the probate fee. Trust management is expensive and cumbersome. The fees of the trustee, attorney and tax advisor will likely exceed the probate fee.