What is the Difference Between Probate and Estate Planning?

source: rmshc

You may wonder if probate and estate planning are the same things or if there is a difference. Of course, there is. Probation is making a will or a trust enforceable in court after your death or incapacitation. Estate planning is preparing tasks that manage your financial situation after your death.

In this guide, we will discuss both terms, why it is important to know the difference between the two and how to ensure that your financial plan is carried out exactly how you want them to be.

Probation is the legal process of transferring the assets after the death of a person to his proper inheritors. The term 'probate' refers to 'proving' who will inherit the assets. It is used to determine the decedent's proper beneficiaries. It can be initiated with or without will.

An executor usually completes the probate process if there is no will by distributing the deceased's assets to beneficiaries.

Though probate and estate planning are interrelated, these two have some key differences. The probate process is done through a court which includes authenticating the will and deciding how to distribute the properties among the decedent's heirs. 

On the other hand, estate planning is important to know if all your assets will be probate or non-probate and take the right steps to reach your goals of transferring them after your death. 

Having written a will before death will help the probate process, and some assets may be distributed to the beneficiaries. These are probate assets requiring a probate court order to pass the assets. Probate assets can include: 

• Personal property like jewellery, furniture etc. 
• Real estate property like houses and plots 
• Personal vehicles like bikes, scooters, boats etc. 
• Bank accounts 
• Life insurance policies 

However, the non-probate assets are not controlled by your will. These properties go directly to your inheritors without a probate court order. These include: 

• Any estate that is in the name of a trust 
• Joint bank accounts 
• Vehicles with joint ownership with rights of survivorship 
• Life insurance accounts that list someone other than the decedent 

Everybody owns an estate. No matter how less or moderate it may be. It includes all your properties like house, car, checking/savings accounts, and even debt. Estate planning is planning before your death and choosing whom you want to inherit your possessions after you are gone. It can also include: 

• Choosing a guardian for the dependants 
• Providing family members with life insurance 
• Instructions for your care if you become incapable of taking care of yourself 
• Helping minimise taxes 
• Any other instructions for passing on valuables 

When a property owner dies, his assets are reviewed by a probate court which provides the final verdict on the distribution of the assets. Many people create documentation which tells how their assets should be distributed after death. However, in some cases, the deceased person does not leave a legalised will. We have listed below the probate procedures for both situations. 

• With a Will: When a person with a will dies, the executor is responsible for starting a probate process. An executor is a person appointed to carry out given instructions in the will to manage the assets of the deceased exactly how he instructed. The deceased can also specify in the will who will be the executor. 
• Without a Will: When a decedent does not leave a will, it is called intestate death. It is called intestate estate also when the probate court considers the will invalid. In this case, the decedent's assets are distributed according to the country's laws. Generally, the court appoints an administrator to oversee the deceased's assets.

The entire estate planning process is described below. 

• Regulating estate taxes by setting up trust accounts in the name of the legal heirs 
• Writing a will 
• Choosing an executor of the estate to look after the intentions of the will 
• Setting up a guardian for the living dependents 
• Planning funeral arrangements 
• Choosing or updating beneficiaries on schemes like life insurance, 401(k)s and IRAs
• Initiating annual gifting to non-profit and charitable organisations to lower the taxable estate 

You must understand the probate and estate planning procedures for ensuring a secure future of your assets. Expenses associated with probate can be high. Having an easily authenticated will is a common way to bypass the probate process and efficiently pass on assets appropriately. But writing a will is only a step of the estate planning process. While doing it, appoint a responsible executor to ensure your goals are executed correctly.