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Avoiding Probate: Is It Possible?

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CM Law's Ultimate 50 List - Probate Problem #22: Can Probate Be Avoided?

Can Probate Be Avoided?

Avoiding probate is a topic of considerable interest for many, especially when considering the time, costs, and emotional toll associated with the process. While probate is a crucial step in managing and distributing a deceased person’s estate, there are scenarios where it can be bypassed. This article explores the circumstances under which probate can be avoided in New South Wales (NSW), the implications of doing so, and a case study illustrating the significant costs and legal complexities involved.

Why Avoiding Probate Might Be Considered

Probate can be a lengthy and expensive process. Executors may seek to avoid it to:

  • Save on legal and administrative costs.

  • Speed up the distribution of assets to beneficiaries.

  • Maintain privacy since probate is a public process.

However, avoiding probate is not always straightforward and comes with its own set of challenges and risks.

Situations Where Probate Can Be Avoided

Small Estates
In NSW, if the estate's value is relatively small, institutions like banks may release funds without requiring probate, provided the executor presents a certified will and death certificate. Generally, this applies to estates valued under $50,000, though thresholds vary across institutions.

Jointly Owned Assets
When assets are held jointly, such as with a spouse, the right of survivorship applies. This means the surviving joint owner automatically inherits the asset without needing probate. This is common with properties, joint bank accounts, and investments.

Binding Nominations
For superannuation and life insurance policies with binding beneficiary nominations, probate may be avoided. These assets are directly transferred to the nominated beneficiaries rather than passing through the estate.

Intestacy
If there is no will, probate is avoided, but the next of kin must apply for Letters of Administration to manage and distribute the estate. This is a similar legal process but distinct from probate.

The Legal Process of Avoiding Probate

While avoiding probate might seem beneficial, it involves specific legal steps and considerations:

  • Verification of Small Estates: Executors must ensure the estate qualifies as "small" and confirm the acceptance of a will by asset holders.

  • Documentation for Joint Assets: Executors need to provide death certificates and file the appropriate forms with the land registry or other institutions to remove the deceased’s name from joint assets.

  • Updating Nominations: Regularly updating beneficiary nominations on superannuation and life insurance is crucial to ensure these assets bypass probate.

The following case study is a creative attempt by CM Lawyers to illustrate and educate the issues which may arise in a real court case. The case, characters, events, and scenarios depicted herein do not represent any real individuals, organizations, or legal proceedings.

Case Study: Significant Costs from Avoiding Probate in NSW

Introduction
In the case of Re Estate of Miller [2022] NSWSC 758, the beneficiaries sought to avoid probate for an estate valued at $1.2 million. The estate included a jointly owned property and several bank accounts. The executor attempted to distribute assets without probate, leading to legal complications and significant costs.

Case Overview
The executor avoided probate by utilizing the right of survivorship for the property and attempting to release funds from bank accounts through small estate provisions. However, the complexity of the estate and varying institutional thresholds created legal hurdles.

Legal Process and Costs
After a beneficiary contested the distribution due to concerns about the executor’s actions, the case was brought before the NSW Supreme Court. The court found that the executor had failed to account for certain debts and misinterpreted the small estate provisions. The legal fees amounted to $250,000, significantly reducing the value of the estate.

Conclusion
This case underscores the potential pitfalls of attempting to avoid probate without proper legal guidance. While probate might seem cumbersome, it provides a structured and court-supervised process that can prevent costly mistakes.

Lessons Learned

  • Understand the Thresholds: Executors must be aware of the specific thresholds for small estates across different institutions.

  • Consider Legal Advice: Avoiding probate without legal guidance can lead to significant financial losses.

  • Regular Updates: Beneficiary nominations on superannuation and life insurance should be regularly updated to reflect the current wishes of the deceased.

Statistics

  • Small Estates: Approximately 15% of estates in NSW are managed without probate, usually due to their small size.

  • Joint Ownership: Over 60% of married couples in NSW hold property jointly, thus often avoiding probate.

  • Legal Costs: Avoiding probate can lead to legal costs ranging from $50,000 to $300,000 if disputes arise.

  • Time Savings: Properly avoiding probate can reduce the estate settlement time by 3-6 months compared to the standard probate process.

References

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