Much has been written and lectured about one of the core benefits of a Private Foundation—an ideal legal tool to avoid probate. But what is probate and why is it beneficial to avoid this procedure?
Probate is the legal and administrative actions that need to be undertaken before the estate of a deceased person (the properties of all kind that a person leaves behind at death) can be distributed to the heirs.
Below we give a general outline of a typical probate procedure.
Upon the demise of a person who bequeathed or assigned his or her estate by Will and Testament, the Executor (also known as Estate Administrator) takes legal control over the estate. The responsibilities of the Executor are:
1) start the probate procedure, to certify the validity of the last Will and Testament;
2) register all assets and liabilities that form part of the estate;
3) collect all receivables and pay all debts;
4) arrange all fiscal filings; and
5)arrange the proper distribution of the estate among the beneficiaries.
The probate procedure must be completedwhether the assets of the estate are in the same country of the deceased or in a different country but the procedures is more costly and complicated on an international level. If the assets of the estate, such as bank accounts, real estate, or other investments, are located abroad, the following actions need to be completed before the estate can be distributed.
The Executor(s) hire and appoint a probate lawyer to prepare and file a petition for probate.
The probate lawyer sends a notice to all the persons mentioned in the Will to inform them about the death and probate hearing.The probate lawyer arranges for a notice to be published in a newspaper, to inform eventual creditors and other interested parties about the probate hearing.This notice also serves as a means to allow those entitled to object to admitting the Will and the appointment of the probate lawyer as the personal representative.
Several weeks after the petition for the probate hearing has been filed, the probate hearing will take place. Sometimes the court demands that the person or persons who witnessed the deceased's signature on the Will to sign a declaration validating the signature. If there are no objections, the court will approve the petition and appoint the probate lawyer as the personal representative.
The personal representative starts with the process to identify, take possession of, and manage the assets in the estate. This process takes about a year, as it continues until all debts have been paid and all tax returns have been filed. Dependent on the terms of the Will, the personal representative might have to sell assets, such as real estate, bonds, and other investment to raise cash. The value of some assets must be properly appraised and determined before they can be sold.
After all debts and taxes have been paid, the personal representative must prepare and file a report to the court. This report should account for all income received and payments made.
Upon review and approval of the report, the court will give authorization to the personal representative to distribute the estate among the beneficiaries
After all the assets in the estate have been distributed to the beneficiaries, the estate accounting can be completed and the probate procedure will come to an end.
This basic procedure may vary slightly country to country, with some countries having procedures that could be faster and simpler and other countries with probate procedures that could be slower and more complicated. As we can appreciate from the actions outlined above, a typical probate procedure involving assets located abroad could be a costly and time-consuming exercise. In practice, it is not uncommon for an international probate procedure to cost a sizable portion of the estate and last more than two years to complete. Those who create a Private Foundation to circumvent the probate procedure on assets in a foreign country also benefit by avoiding the probate procedure on assets in their home country as well.
We hope to have shed some light on why the avoidance of probate is considered as one of the core benefits of creating aprivate foundation.