After death, what happens?

In most states - Probate Court. After you die, it is critical to understand that your will most likely will end up in a probate court proceeding.

Transfer of the Decedent's Estate

Probate property is property that passes under the decedent's will or by intestacy.

Non-probate property is property passing under an instrument other than a will which became effective before death. This includes joint tenancy property, life insurance, contracts with payable-on-death provisions and interests in trusts.

Administration of Probate Estates

When probate is necessary:

Every state requires you to appoint a personal representative to:

  • inventory and collect assets of the decedent
  • manage the assets during administration
  • receive and pay the claims of creditors and tax collectors
  • distribute the remaining assets to those entitled

Jurisdiction is found in the "probate courts" and to "go thru probate" means to have an estate administered in one of these courts.

Functions of Probate

  • provides evidence of transfer of title to the new owners by a probated will or decree of intestate succession
  • protects creditors by requiring payment of debts
  • distributes the decedent's property to those intended after the creditors are paid

The Disadvantages of Probate

  • High Costs: Due to probate court fees, the commission of a personal rep, the attorney's fee, and sometimes the appraiser's and guardian ad litem's fees.
  • Attorney's Fees: Majority rule is that a lawyer who serves as an executor is entitled to fees for serving in both offices. However some states hold that a lawyer who receives an executor's commission is not entitled to an attorney's fee as well because of the prohibition against self-dealing by a fiduciary.

However, it is hard to have all assets in will substitutes during life and still have liquidity of assets. Therefore, it would be necessary to have probate for the remaining assets.

Benefits of Probate

  • Protects the estate from the claims of creditors - must give notice to creditors in order for them to make a claim, but once they are given that notice (publication is often enough) they are then given a short timeframe within which to file a claim. If no claim is filed during the time, then the estate can be distributed to the beneficiaries.
  • Time frame limit - The law provides that creditors have a 1-year statute of limitations from the death of the decedent (assuming appropriate notification did occur). Further, if direct notice is given to creditors, the statute of limitations is cut to 4 months before creditors can claim debts.

Can Probate Be Avoided?

Yes. There are many ways of avoiding the lengthy delays and expenses of probate court. Each of these can transfer property outside of probate. Several include:

  1. holding property as Joint Tenants
  2. life insurance beneficiary designations, which in most cases are paid outside the probate court proceeding to the beneficiary designated
  3. pension plans, with both federal and state law rules governing the particulars, can often be passed outside of probate proceedings
  4. trusts

It is critical to understand that if property transfers outside of your probate this can lead to harmful results, if you do not plan well. For example, recently I learned of a case in which a person with a $100,000 life insurance policy made the beneficiary his adopted child of his spouse. Divorce and remarriage ensued. In fact, the second marriage brought three of his own children to the man with his second wife. He made a will and provided for the disposition of his estate to his second spouse and his three children. However, he neglected to amend the beneficiary of his $100,000 life insurance policy. At his death, instead of the proceeds being "poured into his estate", the insurance company made a check for the $100,000 to the adopted child of the first marriage, and left nothing for the estate.

While it is possible to contest this situation, you can see that there will be at least two hurdles: (1) How to afford the legal fees to retain an attorney to institute a lawsuit for the proceeds of the policy; and (2) a lengthy court battle, which will exhaust you and your resources. Remember, you do not yet have the $100,000 to spend for a lawyer. You are in a whole different situation when you are suing to recover monies which you believe you are owed. A real hurdle in this case is the fact that you might not win in any event due to the failure to amend the beneficiary designation.

Remember how easily prevention of this problem was: One call to the insurance company, and the completion of a one-page Change of Beneficiary Designation Form (and a stamp).

If you’re interested in avoiding probate, there are options available to you. Contact member services to speak to an attorney and get the process started.

Posted in: Estate Planning