In this article, I want to tackle the legal subject of probate. This may sound like an odd topic for real estate investors, but, in fact, you can often find good investments when someone passes away.

It's a fact of human nature that inheritors of probate estate will often want to sell that property quickly to get the money and aren't always concerned about getting full value from the home. Or, they may live out-of-state and simply not realize the full value of the property. When these situations occur, the opportunities for bargains arise!

What is Probate? The term "probate" comes from the Latin word "probatum" meaning "prove." In other words, the probate is a legal process by which it's proved that a will is (or isn't) authentic.

Specific procedures vary by state, but probate generally includes the following steps: * When a person dies, the will is filed with the local probate court (sometimes called a "surrogate" or "chancery" court). An inventory is then taken of the property. The property is appraised for its value. Assuming the will is determined valid in court, any legal debts (including death taxes) must be paid. After debts and fees are paid, the property is distributed as dictated by the will.

You may wonder what happens if the will isn't valid or no will was left. In that case, the estate still must go through a intestacy"("without a will") proceeding. This means the property is distributed to the closest relatives as dictated by state law.

Since you may be involved personally in probate proceedings (as distinct from an investor's point of view), it pays to know the advantages and disadvantages of the probate system.

Advantages of the Probate System - Probate makes sure that only your beneficiaries receive your property. In other words, it prevents fraud. Creditors have to prove their claims against the estate. The probate process can resolve any disagreements involving your estate and disposition of your assets.

Another advantage is that the probate process limits the time creditors have to make claims against the estate. There's a "statute of limitations." So, if creditors don't make their claims within the specified time period, those claims are no longer enforceable.

Disadvantages of the Probate System - In the opinion of many critics, it costs way too much for the services rendered. They claim that probate provides no real benefits, except to provide lawyers with excessive fees.

An AARP study concluded that the probate process can generate legal fees of 12%-20% of the estate for the lawyer alone. It also concluded that probate can reduce the estate passing to one's heirs by 5% or more. Source- http://www.aarp.org

In a few states, the fees are based on a percentage of the estate. Fees may be based on "gross" probate estate. Additional costs may include court costs, appraiser's fees, etc. Also, basic fees may be set by statute. In addition, if "extraordinary" services are performed, the attorney/executor can ask for additional fees.

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