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Probate and Estate Administration
What are "probate" and "estate administration"?
In a nutshell, probate is the winding up of your affairs after you die. It is the process of determining the validity of your will or establishing the identity of your intestate heirs. A personal representative is appointed to administer your estate Ė to act on your behalf and manage your estate, collect your assets, pay your debts, and distribute your remaining property to your beneficiaries or heirs.
How long does the probate process take?
It generally takes a few months to a year, but it depends on the size of your estate and whether there are any complications (such as a relative contesting the will). The process usually requires court supervision in order to protect your family, beneficiaries, and creditors, so it may take a long time if your estate is large.
TIP: To avoid making your beneficiaries wait too long before receiving their inheritances, you should consider gifting the property through nonprobate alternatives (e.g., trusts, joint bank accounts, and lifetime gifts). Also, remember that your spouse and minor children are entitled to statutory allowances to provide for their living expenses while your estate is in probate.
What is a "personal representative"?
A personal representative is the person responsible for managing your estate after you die and making sure that your wishes are carried out. He usually acts as a liaison between your estate and the court, your heirs/beneficiaries, and your creditors. It is someone who is designated by you in your will (called an "executor"), or appointed by the court if you did not name one or if you have no will (called an "administrator"). The person must usually be of legal age, competent, and a U.S. citizen; he cannot be a convicted felon.
TIP: Before you name an executor in your will, make sure that person will accept the appointment on your death. Also, you should name a successor executor in case the person of your choice is unable or unwilling to serve.
What happens to my will when I die?
When you die, your will is offered to the court for probate. This is usually done by your personal representative or someone who has possession of it, and must usually occur within a certain amount of time after your death. The court then verifies the willís validity, which sometimes requires the testimony of witnesses who either verify that the signatures on the will are yours and theirs or that the handwriting is yours (this testimony is not necessary if the will is accompanied by a self-proving affidavit). If all is compliant, the court declares the will valid and the process of settling your estate begins.
What if the court rules that my will is not valid?
Sometimes the court may determine that the will is invalid. This might happen if it was not signed by you, if it is not signed by the appropriate number of witnesses, or if it is the result of someone elseís coercion. If it is declared invalid, the will is denied probate and your property passes as if you had no will to begin with, pursuant to your stateís intestate succession statutes.
If I create a will in one state, but die in another, is the will still valid?
Yes. The will can be probated in the state in which you die as long as it is valid pursuant to the laws of either the state in which it was created or the state in which you lived before your death. For example, if you executed your will when you lived in Minnesota, but you lived in Illinois when you died, then your will is valid in Illinois - even if it does not conform to Illinois law - as long as it was valid in Minnesota when you created it. Similarly, if your will was not valid in Minnesota when you created it, but is valid under Illinois law, then it is admissible to probate in Illinois. Note that this does not apply to oral wills - they are valid only in the state in which they were created.
I am named executor in my motherís will. What are my responsibilities?
As executor of your motherís estate, it is your duty to perform the duties required of executors by law and to make sure that the wishes in your motherís will are carried out.
Generally, you are responsible for performing the following tasks with respect to your motherís estate:
- Present her will to the probate court.
- Make a list of all her probate assets (called an "inventory") and submit it to the court.
- Publish a notice of her death in a local newspaper (to provide notice to her creditors that she has died).
- Collect all her assets and sell those that are needed to pay any claims against the estate (if there is not enough money to pay all debts).
- Pay all her debts (i.e., funeral expenses, estate taxes, hospital bills).
- Pay any allowances to her husband or minor children.
- Distribute any remaining assets to the people named in her will as beneficiaries.
TIP: These duties can seem overwhelming and you can certainly hire an attorney to assist you. But keep in mind that any fees will be charged to the estate.
Do I get paid for my services as an executor?
Yes. You are entitled to payment out of the estate. Your fee will either be set forth in the terms of the will or by state law (usually a percentage of the estateís value). If the decedent is a family member, you might want to consider waiving your fee.
My mother left a will but did not name an executor. Who will be appointed?
It depends on your stateís particular statute, but the surviving spouse usually is first in the order of priority. If there is no surviving spouse, the court might appoint a child, parent, or other beneficiary in the will.
The laws of the state where I live require that my executor be "bonded." What does that mean?
The bond serves as a type of insurance that your estate is managed in a way that is not detrimental to the interests of your beneficiaries. The executor must act in good faith in managing your assets, and if he acts in any way which results in harm to a beneficiary, the bonding agency will compensate the beneficiary.
SIDEBAR: Most states require executors to be bonded. However, if you trust that the person you name will act according to your wishes and in the best interest of your beneficiaries, then you can insert a clause in your will requesting that the court waive the bonding requirement.
My mother left so many bills when she died that the assets in her estate are not sufficient to pay all the bills and still make all the gifts. As her executor, what do I do?
You will have to apply some of the gifts towards her debts, which might involve selling some items. This is referred to as the process of "abatement," which means that payment of the debts is made out of the property that is left to the beneficiaries or heirs. Property generally abates in the following order of priority:
- First, any property passing by intestate succession is used.
- Second, any property that falls in the residuary estate is used.
- Third, any general gifts (gifts of cash) are used.
- Finally, any specific gifts (gifts of a specific item of property) are used.
You begin in the first category and if that property is exhausted, then you continue onto the next category, and so on until all the debts are paid. If you only need part of the property in one category, then the property in that category abates on a pro rata basis, so that all of the beneficiaries in that category contribute towards the debts. Any remaining property after the debts are paid is then distributed to the appropriate beneficiary or heir.
EXAMPLE: Assume your mother dies with debts totaling $250,000 and leaves an estate valued at $500,000, which contains the following items of property:
$100,000 cash left to her granddaughter. This is a general gift.
Home worth $200,000 left to her mother. This is a specific gift.
Boat worth $75,000 left to her son. This is a specific gift.
Residue worth $125,000 left to her neighbor. This is the residuary gift.
First, you start with the residuary estate because there is no intestate property. The residuary estate is worth $125,000, leaving $125,000 in debt. Next, you move onto the general gifts. This is only $75,000, leaving $50,000 in debt. Next, you move on to the specific gifts. These are worth $275,000, but you need only $50,000 so both gifts make a pro rata contribution to make up the $50,000. The remaining property is then distributed to the mother and son. The neighbor and granddaughter take nothing because the full value of their gifts was exhausted in paying the debts.
What if I am forced to sell all the assets and still am not left with enough to pay all her debts?
If the estate is not large enough to pay all of her bills, then all the assets must be sold and applied towards her debts in the following order of priority:
- Administration expenses;
- Funeral expenses and medical expense from the last illness;
- Family allowances;
- Claims of the U.S. government (e.g., taxes);
- Secured claims;
- Judgments against her; and
- All other claims.
My auntís estate is very small. What alternatives are there to a formal probate process?
Some states allow a small estate to be administered in one of the following manners:
Independent Administration: The court approves the appointment of the personal representative, who then files an estate inventory with the court. After that, the personal representative can act on behalf of the estate without any court supervision or approval.
Muniment of Title: Purpose is to simply clear title to certain real property. Can be used when the estate has no debts and there is no need for a personal representative.
Small Estate Affidavit: Heirs file an affidavit with the court stating they are entitled to outright distribution if the value of the estate is less than an amount specified by state statute (usually $50,000), excluding nonprobate assets, homestead, and family allowances.
Informal Family Settlement: Can be used for small estates that contain only tangible personal property (not bank accounts or stocks).
My uncle executed a will before he died but now we canít find it. What can we do?
The will can be probated as a "lost will" after a few requirements have been satisfied. First, it must be established that he executed a valid will and that it is lost (as opposed to him having destroyed it before he died). Then the contents of the will have to proven. This is usually accomplished by either submitting an acceptable copy of the will or through the testimony of anybody who knew the contents of the will, such as the attorney who prepared it.
These days I hear a lot about avoiding probate. Why would I want to do that?
There are many benefits to avoiding probate, chief among them are to reduce or avoid the payment of death taxes and to accomplish the speedy of delivery of your belongings to your heirs or beneficiaries. Probate is a costly process, and sometimes a lengthy one. If you can transfer your property without having to go through the court, your family, friends, and loved ones will reap the benefits.
How can I avoid the probate process?
You can avoid probate by planning your estate so that some, or all, of your belongings pass through nonprobate transfers (also called "will substitutes"). There are many types of will substitutes, each designed to offer a particular type of benefit. Some options are to place your property in a living trust (by far the most common type), change ownership of your property to joint tenancy or tenancy by the entirety, or give property away during your lifetime.
TIP: You should have a will even if you decide to transfer property in one of these ways. You can use it to name a guardian for your children, name an executor, and state your wishes in the event you become incapacitated.