Don’t Fear The Registrar

Ben takes on and dispels the most common myths and misconceptions about Probate

You’ve heard it on the radio, from your neighbors, friends, friends of friends, co-workers (who, in turn, probably heard it from their radios, neighbors, friends), etc., etc.  It’s practically become an immutable law of nature: "Probate Is Bad".  To hear these people explain it, probate falls somewhere between the Black Plague, an IRS audit, Big Oil companies, root canals, and Al Qaeda.  But is probate really that awful?  This article will address this question and intends to provide a more honest picture regarding the probate process as it exists in Arizona.  However, before discussing the realities of probate here in Arizona, it is helpful to understand what probate is. 

In very basic terms, probate is a legal process in which a dead person’s property is collected by a person (or persons) appointed by the court (known here in Arizona as the “personal representative” (or “PR” for short), the decedent’s debts and last expenses are paid, any taxes owed are taken care of, and whatever is left over distributed in accordance with the decedent’s wishes under a Will (if such a will was prepared), or to the decedent’s heirs (if there was no will) as set forth by the laws of intestacy.  In this article, we will use a hypothetical couple, Adam and Becky, and their young son, Chandler. Adam died as a result of a tragic automobile accident on January 1 of this year.  He left a Last Will and Testament giving everything to his surviving spouse, Becky, and naming her to serve as PR of his estate upon his death. 

With that out of the way, let us take a closer look at some of the “greatest hits” of the probate-haters and those I like to call "The Living Trust-Industrial Complex":

If you don’t have a living trust, your estate will have to go through probate.  This is one of the more popular arguments by estate planning attorneys, financial planners, and others who would like people to go out and spend several thousand dollars (or, worse yet, use a software program or internet-based website) to prepare a living trust.  The biggest problem with this statement is that, not only is it self-serving, but relies on incomplete information in the hopes of scaring its listeners into spending money on an instrument which they may not even need.

First of all, even if you don’t have a living trust, your estate may not have to go through probate.  Take our sample couple; if Adam died essentially with little to no estate (or an estate which was insolvent), there is nothing that requires that his Will be admitted to probate or his estate be administered.  Thus, even though Adam did not have a living trust, his estate will still not have to go through probate.  Our state’s probate laws (found under Title 14 of the Arizona Revised Statutes (A.R.S.) will not force Adam’s surviving family to go through the time and expense of a probate when there is effectively no estate to administer.  But what happens if Adam does die with an estate worth something, does the estate have to go through probate then?  Even here, the answer is: not necessarily.  In Arizona, as in most states, we have “small estate” or summary administration procedures for estates with a total net worth less than $50,000 (for personal property) and $75,000 (for real estate).  For estates that qualify for these procedures, a probate never even needs to be opened but can be handled through the completion of a special affidavit.  Again, let’s take a look at our hypothetical Estate of Adam.  Assuming the net value of Adam’s personal property amounted to less than $50,000, Becky would not even have to probate Adam’s Will or get herself appointed as PR in order to collect and manage his personal property and transfer it to herself.  She could simply wait the statutorily required 30 day period, complete the form affidavit, and then use this affidavit to collect, transfer, sell, or encumber Adam’s personal property, just as she would if she had gotten herself appointed as PR of his estate.  Similarly, assuming Adam’s interest in real estate as a whole totaled $75,000 or less, Becky could use a similar (albeit slightly more complicated) affidavit procedure to take control of, sell, transfer or dispose of Adam’s real estate—all without ever having to open up a probate to administer the estate.

Finally, the statement that all estates have to go to probate if there is no living trust completely ignores the many non-probate assets and devices available to people who wish to plan for their estates. It is more likely than not that the reader already has or owns an interest in at least one of these types of non-probate assets.  For example, real estate you may own with your spouse in joint tenancy with right of survivorship, as well as most life insurance, 401(k)s, and other accounts with either a pay-on-death (“POD”) or transfer-on-death (“TOD”) designation pass to their intended beneficiary by operation of law.  In plain English, these types of assets transfer to whoever their owner has pre-designated (while alive, of course) outside of the probate process completely.  Thus, if one’s property consists of mostly or entirely non-probate type assets, then there is little to no reason to hire an attorney to prepare a living trust.  With this said, revocable living (and other types of) trusts are wonderful and extremely flexible devices for the right person in the right situation, and it is important to understand that using non-probate assets are not a cure-all and do come with certain disadvantages.  However, the pros and cons of having jointly titled and other non-probate assets described above are beyond the scope of this article.  The point is; a person who makes use of non-probate transfer options can conceivably avoid probate entirely and, as a result, make this main reason for having a living trust prepared basically irrelevant.   

Probate is expensive.   This is perhaps the most popular argument against probate advanced by members of the Living Trust-Industrial Complex.  However, as with many misconceptions regarding probate, it paints with a very broad brush.  In this humble attorney's opinion, it is no more accurate to say that “probate is expensive” than it is to say that “all Spanish speaking people come from Spain”.  In other words, it is important to understand that probate laws differ from state to state, so making a blanket statement that “probate is expensive” is not only intellectually lazy but, even worse, does a disservice to the public who need (and deserve) accurate information in developing an estate plan that will fit their circumstances. 

So, is probate in Arizona expensive?  The short answer is that it can be, but, in the vast majority of cases, usually is not and does not have to be.  To understand this answer a little better, it is first important to understand that there are basically three types of probate proceedings here in Arizona--informal, formal and supervised administration.  For much of Arizona’s history, probate was handled in the supervised fashion, where a probate judge oversaw virtually every single aspect of administration of the decedent’s estate from the opening of the estate through to its closing. As you can imagine, such active court involvement necessitated the court's time and resources, as well as the hiring of an attorney to represent a personal representative (or, an heir, creditor, etc.) in the proceedings, increasing the overall length of time and cost required to administer an estate. 

However, thanks to Arizona's adoption of the Uniform Probate Code, the vast majority of probate matters filed in our state are handled informally.  What would an informal proceeding look like in Adam’s estate?  Assuming no other persons objected or beat her to it, Becky would apply to a judicial officer known as the Registrar to have Adam’s Will admitted to probate and also to be appointed as PR for his estate.  Assuming her paperwork was in order, the Registrar would then issue certified Letters (the official court document which gives Becky legal right to collect and manage Adam’s property and administer his estate) to Becky right there on the spot.  As you may have noticed, Becky never even had to step into a courtroom, which goes to the main idea behind informal probate--to provide the lay person with an efficient and relatively simple method of opening and administering estates, and therefore reserving the court’s calendar and resources for more complex estates or ones with serious disputes or problems.  Which brings us to our last type of probate proceeding: formal. 

Formal proceedings are essentially litigation in the probate courts.  As with traditional civil litigation, formal proceedings require notice to all parties interested in the matter, and allow interested parties the opportunity to be heard by a Superior Court judge or commissioner.  How could a formal situation arise in Adam’s case?  Suppose Adam, for instance, had an adult son, David, by a prior marriage.  David might have a different, conflicting will which was executed by Adam several weeks before his death that leaves everything to David.  David could theoretically petition the court to challenge the Will which Becky probated.  Upon the filing of such a petition, the probate matter which Becky filed informally automatically becomes a formal proceeding, which then gets assigned to a Superior Court Commissioner and set for a hearing.  Needless to say, once a proceeding goes formal, an attorney becomes necessary or, at a minimum, strongly recommended, to represent a party in the case, file or respond to any pleadings, and serve as that party’s advocate in the matter.  As a result, things can get rather expensive in a hurry.  At the same time, the importance of having the ability to initiate formal proceedings should not be understated.  If, for example, an heir (or third-party) has concealed assets belonging to the estate, a PR is improperly utilizing estate funds or assets, or credible evidence exists that the will admitted to probate was actually obtained through deception or undue influence, the formal proceeding allows such challenges to be argued, evidence presented, and the dispute decided by a Superior Court judge or commissioner.

However, it bears repeating—the vast majority of cases will never come close to being or requiring a formal proceeding.  Most estates are either too small or too simple to make even an informal probate proceeding necessary.

Probate takes years or at least months to complete.   The truth is, even the simplest informal probate can take approximately five to six months to complete, however only the rarest cases will take any longer, and certainly only a small fraction will take years.  Those that take longer than six months are typically those handful of cases in which there is either a substantial or complex estate, heirs or family members who don't like each other, or both. 

Can probate be accomplished overnight or within several days? Of course not. But remember; one of the reasons we have a probate system is to lay down the framework and rules for making sure that a person’s estate gets to who it is supposed to, and this includes making sure that any debts that the decedent had before he or she died (assuming there are sufficient estate assets to cover them) get paid.  To this end, our probate laws require an appointed PR to let all creditors know that the decedent has died, and that a will has been probated and/or a PR appointed for the estate.  In general, creditors are allowed four months from the date of notice to come forward and make a claim to be paid.  In other words, in most cases, the minimum amount of time for (an informal) probate is the amount of time which must be given to creditors to present their claims--four months.  The practical reality, however, is that the minimum time to complete a probate is more like six months.  This estimate also does not include the time required to prepare any final income tax, estate or fiduciary income tax returns which may be due. While six months may not sound all that great, that time can pass fairly quickly, particularly if you are the appointed PR, who has a number of responsibilities and plenty to do in the meantime (e.g., providing notice to interested parties, collecting estate assets, preparing an inventory, reviewing creditor claims, etc.).  In addition, proponents of living trusts usually fail to mention that the time to prepare final income, estate and/or fiduciary tax returns is essentially the same whether the estate is administered through probate or by way of a trust. 

Probate is public/Living Trusts offer privacy.  This is the argument that I always find the most amusing.  Since a probate proceeding (whether informal, formal or supervised) involves the filing of certain papers with the court, the matter automatically becomes part of the public record, accessible by any member of the public with the willingness (or free time) to bother to go down to look them up.  This, according to the detractors of probate is such a terrible thing that no one in their right mind could ever want this to happen and would be foolish not to have a living trust prepared.  However, this argument presumes that there are actually people out there who are so bored or have nothing better to do than to look up paperwork filed on probate estates.  Quite honestly, how many of us really care who knows who is the personal representative of our estate or what our Will might say? 

The corollary to this “publicity” argument of the probate-haters usually goes something like this: “If you don’t use a living trust, then anyone can find out what is in your estate!”  Again, I would probably be past the point of caring, however, I will admit that this point might cause some discomfort for some of you who might have assets which they would rather not have the general public know about.  For such persons, our legislature has provided a simple solution that doesn't involve you spending money on a living trust.  At least in Arizona, although a PR is required under the law to prepare and file an inventory of the estate assets within a certain time period after appointment, this filing requirement can be avoided by simply providing a copy to all beneficiaries.  In our example of Adam’s estate, Becky is required as PR to prepare an inventory of Adam’s estate.  However, suppose Adam had certain property which Becky did not feel comfortable itemizing in a public document filed with the court. Instead of filing the inventory with the Court, she could simply courier or mail a copy of the inventory to those entitled to receive it.  So long as she actually delivered a copy, the requirement for the filing of the inventory would be satisfied, and the inventory of estate assets never has to enter the public information domain.

Lastly, the “publicity” argument ignores the very real fact that the so-called privacy of a revocable living trust can actually be a disadvantage.  How, you may ask, could such a thing as privacy ever be a disadvantage?  Suppose, instead of a Will, our friend Adam had a living trust which named Becky as his successor trustee, and that the trust provisions also provided for David to be given some income from the trust annually as well as a payout of a percentage of trust principal upon his turning a certain age.  But let’s also suppose that Becky decides to lie, cheat or steal in administering the trust estate.  Assuming he could even find out about it in time (before Becky spent the trust assets on Chandler, vacations, a second home, a new husband or boyfriend, etc.), what recourse would David have?  Short of filing an actual lawsuit against Becky, not a whole lot.  Could David maybe get a copy of the trust agreement to see if Becky is really doing what she’s supposed to?  Not really.  Under A.R.S. §14-7303, David would only be entitled to a copy of the “terms of the trust which describe or affect his interest”, as well as an accounting of trust assets upon “reasonable” request.  Who gets to decide what the relevant terms of the trust are, or what is a reasonable request?  You guessed it—Becky.  The accounting of the trust assets would be helpful, of course, however this presumes that Becky is not only honest, but is actually good at record keeping and that a halfway-comprehensible accounting is even possible.  You would be amazed at how often a trustee (or their attorney) respond to my requests for information or an accounting by saying that they’ve “lost” portions of the trust document or the records of certain transactions!  The point is, having a trust does not necessarily mean that your selected trustee will either be honest, or do the right thing and, because of the mostly non-public nature of living trusts and their administration, the ability for a wronged beneficiary to discover the malfeasance can be difficult or at best delayed.  Sure, David could always sue Becky for breaching her fiduciary duties to him and for his damages, however, having a judgment against Becky for, say, $250,000 plus his court costs and attorneys fees is worth little to David if Becky cannot pay because she already exhausted the trust estate.  So why, in such an instance, is probate an advantage?  In a word, transparency and accountability.  Going back to our initial scenario where Adam had a Will, under our state’s probate code, Becky would be required to follow specific procedures in her handling of the estate, including providing all beneficiaries with notice and information regarding the Will's probate and her appointment, as well as a complete inventory of estate assets discussed above.  If Becky was improperly administering Adam’s Will, or embezzling, or making improper distributions favoring one beneficiary (say, Chandler) over another, David (or any person interested in the estate) could not only find out about it much sooner, but also file a formal proceeding in probate court to have Becky restrained from taking further action as PR, have Becky removed altogether as PR, have Becky provide a complete accounting of the estate assets to date, have her held liable for the improper distributions, or all of the above. 

In Part 2 of this series, I will be discussing the advantages and (seldom talked about) disadvantages of Revocable Living Trusts as estate planning devices.

-Ben Bhandhusavee

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