Understanding How to Probate an Estate
by Jeffrey Lanzet, Esq.
Losing a loved one is an emotional and stressful time that is often compounded by managing the affairs of the decedent’s estate. The following article is designed to help you navigate the estate settlement process.
REQUEST COPIES OF THE DEATH CERTIFICATE
Be sure to request multiple copies of the decedent’s death certificate from the funeral home, as you will need to send copies to notify organizations and agencies of the passing. It is very likely that you will need at least six copies, however, you could need many more. As you determine the specific notifications you need to make on behalf of the estate, keep track of those that require a copy of the death certificate.
INVENTORY THE ESTATE
One of your first steps should be to begin to inventory the estate. It may seem overwhelming, but just start by recording a running list of all the decedent’s known assets and debts.
Quickly secure the decedent’s assets for safekeeping, and to eliminate the chance of estate fraud or theft. Pay special attention to jewelry, art, cash and other items that could easily go missing and may be difficult to track. You may consider renting a safety deposit box to hold these items. Type up a list of its contents and include the original list with your signature in the safety deposit box and keep another copy with your estate management records.
Request Credit Reports
For a complete financial picture, request a credit report for the deceased from each of the following agencies: Experian, TransUnion and Equifax. You must be an appointed Executor/Administrator or a surviving spouse to obtain these credit reports. To request, an Executor/Administrator should send a letter and a copy of the Letter Testamentary/Administration. The surviving spouse should send a letter, a copy of their driver’s license and a current utility bill for proof of address.
Secure Decedent’s Tax Return
To obtain a tax return, contact the decedent’s accountant, their personal records or the IRS (use IRS Form 4506, Request for Copy of Tax Return). Executors/Administrators should also complete IRS Form 56, Notice Concerning Fiduciary Relationship.
Organize Property Information
Collect all beneficiary and co-debtor information and categorize the decedent’s assets into Real Property (houses, co-op, condo and land) and Personal Property (all other belongings such as jewelry, bank accounts, art, IRAs, stocks, bonds, life insurance, etc.). For any Real Property, obtain a copy of the deed from the County Clerk’s Office in the Civil Court in the county where the property is located. The deed indicates ownership.
For any Personal Property, identify any joint account holders and/or beneficiaries to determine the procedure for liquidating the asset.
For all property, be sure to obtain an appraisal if you are unsure of its value. In some cases, it is worth the investment to get more than one appraisal
COMPLETE A CHANGE OF ADDRESS FOR THE DECEASED
To help you in settling the estate, it is important you receive the decedent’s mail. Often you will be made aware of evidence of assets and debts through the mail and you can then add to your estate inventory. You should change the deceased’s mailing address by contacting your local US Post Office branch or go to www.unitedaddresschange.com. To change the address with the IRS, if necessary, use IRS Form 8822, Change of Address.
LOCATE THE LAST WILL AND TESTAMENT
If one exists, you should make every effort to locate the decedent’s Last Will and Testament as it, if properly prepared, will make distributions based on the wishes of the decedent. An original copy should be retained, as many Courts will not accept a photocopy. Be careful not to remove the staple that fastens the will to avoid, under Court examination, any suggestion that it was tampered with. If an attorney prepared the will, contact him/her to sign an Affirmation of Supervising Attorney attesting to their participation in the creation and execution of the Last Will and Testament.
If there is no will, each state has created Intestacy Laws that determine who gets what and in what priority to help you close the estate. In fact, 70 percent of all Americans die without a will in place.
Send Death Notifications To Concerned Parties
It is critical that you notify certain people and entities of the recent passing of your loved one to protect the estate from identity theft and fraud.
Create a Contact Directory
Create a contact directory to include all family, friends, business associations (banks accountants, doctors and lawyers), governmental agencies and employers. This will help you organize who needs to be notified.
Complete a Family Tree
Next, complete a Family Tree to identify family members (alive or deceased) and determine potential heirs of the estate: Many of these family members must be put on notice upon the filing of papers with the local Probate Court. As well, most Probate Courts will require you to fill out a Family Tree Affidavit and submit with your Petition for Probate.
It can be very helpful to solicit input from your relatives to ensure the Family Tree is complete and accurate. Many Probate Courts will require you to conduct a due diligence search for family members if they are not confident your Family Tree is complete and accurate, which may cost the estate thousands of dollars in attorney and private investigator fees. The Court may also require publication in one or more newspapers, which can also cost thousands of dollars. It is in the estate’s best interest to reach out early to family and friends of the deceased to compile this information.
DETERMINE IF YOU NEED TO HIRE A LAWYER
There are a couple of important factors to help you determine if you need a lawyer to help manage the Probate process and the closing of the estate. The laws of most states do not require that you hire an attorney. You are also not required to file papers with the Probate Court right away: Most do not have a required time line for setting up an estate. While we do not suggest you unnecessarily delay the process of settling the estate, it’s important to know that you won’t lose any rights as a result of not doing something immediately (the first 30-60 days) after death.
Estimate the Size of the Estate
The first consideration in deciding whether or not you need a lawyer is the size of the estate. Typically, estates under $25,000 are considered “small estates” and are governed by easier Court procedures. Most Courts will allow you to obtain an Affidavit of Heirship or Small Estate Affidavit which will allow you to liquidate any assets held in the decedent’s name alone (no co-debtor), provided the dollar amount does not exceed $25,000. Each state has a different definition of what constitutes a small estate; you should check with the Probate Court in the county where the decedent resided for clarification.
Larger estates usually entail more rigorous guidelines and Court approval to gain authority to liquidate assets, pay bills, make distributions to heirs and close the estate. There are also tax issues with larger estates, especially those over $1 million dollars, which need to be analyzed to maximize the distribution to heirs.
Understand the Complexity of the Estate
The next consideration is the complexity of the estate. Generally, the more assets the decedent holds in their name alone, the more complex the estate and the greater the need for an attorney. If there is Real Property owned by the decedent that does not have a joint tenant or tenant by the entirety (a spouse with a right of survivorship) on the deed, a lawyer will likely be needed.
Navigate Family Disagreements
Finally, if there is any disagreement amongst the surviving family members who are either named in the will or may be entitled to a share of the estate through the laws of intestacy, you need to consult with an attorney to help amicably address the concerns of all parties. Families sometimes contest the validity of the will, the appointment of a particular Executor or Personal Representative, or a sudden change in beneficial interests of assets in the last months of the decedent’s life. As well, the competency of the decedent at the time a will was executed is sometimes questioned.
Contact the Probate Court
After evaluating all of these factors, if you would like to try and set up the estate without a lawyer, contact the Probate Court in the county where the decedent resided. You will give the Probate Clerk the approximate value of the estate: The value of the estate for this purpose consists only of those assets held in the deceased’s name alone. The clerk can then advise if you are permitted to set up the estate without an attorney and provide the forms you will need to do so. Be sure to make several copies of the packet, fill out all forms and submit with the appropriate filing fee. (Most Probate Courts require a filing fee with the initial paperwork, which varies depending on the size of the estate.) If the Court will not provide you with the proper forms, you will need to hire an attorney.
Understand Your Options
There is no legal requirement for you or your family to do anything with the estate. Many times, if the debts are greater than the assets held in the deceased’s name alone, it does not make sense to go through the Probate Courts. The completed FEM Asset and Debt Inventory Worksheet should be a great help in making this determination. If you conclude that the debts are greater than the assets and choose to do nothing with the estate, you will give up the rights to any Probate assets, the creditors will write off the debt as uncollectible and the assets held in the deceased’s name alone will eventually transfer to the state.
DETERMINE IF THE ESTATE NEEDS TO GO TO PROBATE
Probate is the legal process that proves in Court the decedent’s will is valid; identifies, inventories and appraises the deceased’s property; pays off any outstanding debt or taxes; and distributes the remaining property as the will or law directs. The Probate process is managed by the Executor/Personal Representative of the will or, if there is no will nor Executor named, a judge appoints an Administrator.
The Probate process is expensive, time-consuming and can be emotionally draining for you and the family. We suggest going through the Courts only if there is a benefit to the surviving family members. There is no legal requirement for you to do anything with the decedent’s estate: There is no criminal or civil punishment for doing nothing. If you choose to do nothing with the estate, you will give up the rights to any Probate assets, the creditors will write off the debt as uncollectible and the assets held in the deceased’s name alone will eventually transfer to the state.
Identify Non-Probate Assets
Some assets pass “outside of the estate” and are not subject to Probate Court approval before liquidation. These include:
For instance, if the decedent owned a house with his wife as joint tenants, there is a “right of survivorship,” which means the property ownership vests wholly in the surviving spouse upon the death of the other spouse. The decedent may need to be removed from the deed; however, the ownership of the property is protected
If the decedent had a life insurance policy that named a beneficiary, the proceeds of the insurance policy belong to the beneficiary, pass outside of the estate and are not subject to distribution as dictated by a Last Will and Testament, Intestacy Laws or the Probate Court. These assets may be part of the taxable estate, but are not part of the Probate estate. This is also true if the decedent had IRAs, stocks, bonds, bank accounts, annuities, etc. that name a beneficiary.
Usually the named beneficiary of a life insurance policy just needs to contact the life insurance carrier, fill out a claim form, and provide a death certificate and proof of identity to claim these monies. These monies are not subject to any creditor claims the decedent may have against them. For example, if the decedent owed $100,000 in credit card and medical bills and had no assets except a life insurance policy for $50,000 with the daughter as the beneficiary, she would be entitled to the entire $50,000 and the creditors would receive nothing.
If the decedent had a joint bank or other joint account, usually these assets automatically belong to the joint holder of the account upon death. There is no need to wait for Probate Court approval to claim these funds.
Identify Probate Assets
Any asset that is held in the deceased’s name alone must go through Probate to be liquidated and will be distributed according to the will or Intestacy Laws. Seventy percent of all Americans die without a will so each state has created laws that determine who gets what and in what priority if there is no will.
FILE FOR PROBATE
If it is determined to be in the best interest of the family for the estate to go into Probate, liquidation of the deceased’s assets, other than those held jointly or with named beneficiaries, requires approval from the Court. This approval comes in the form of Letters Testamentary or Letters of Administration, which grant the estate Executor or Administrator authority to manage the affairs of the estate, while following the legal mandates set by the will or Intestacy Laws. Even with a Last Will and Testament naming you as Executor, you do not have the authority to act until the Court has officially issued Letters Testamentary or Letters of Administration.
Send Will and Probate Waivers to Family Members
While filling out the Probate forms, reference the Family Tree you completed. Anyone who is entitled to proceeds of the estate (“take”) by virtue of being named in the will or by Intestacy Law must be sent a copy of the will and/or be put on formal notice of the Estate Proceedings. The FEM tool provides a beneficiary letter to make this process simple to complete.
Most states also provide waivers for each distributee (one who takes under the Intestacy Law) and legatee (one who takes under a Last Will and Testament) to sign. These waivers prevent the need for additional legal proceedings and greatly reduce the costs of administering the estate by eliminating Court appearances and additional legal fees. It is important to send out the waivers and will as soon as possible because the Court will not allow the Probate process to continue until all necessary parties have been properly put on notice.
If anyone refuses to sign the waiver/consent to Probate, it means that the estate is being “contested.” If this happens, a court date will be assigned and you will need to hire a lawyer if you haven’t already done so. Any party may contest or object to the will or to the appointment of the Executor/Personal Representative. There are other ways a will may be contested including charges of fraud or undue influence, as well as questions of the competency of the deceased at the time the will was executed.
Submit Required Documents to the Probate Court
If you are able to obtain signed waivers/consent to Probate, you will submit these to the Probate Court along with your Family Tree and Affidavits of Attesting Witnesses if the will is not self-attesting. These affidavits certify that the deceased was not under coercion, duress or undue influence and did not suffer from any mental disability when executing the will. If no objections are made, the Court will issue Letters Testamentary/Administration to the proposed Executor/Administrator.
Apply for Out-of-State Ancillary Letters Testamentary if Needed
If any assets are located in another state, you may need to apply for Ancillary Letters Testamentary/Administration to liquidate these assets. Contact the Probate Court in the county where the asset is located. Tell them you have received your Letters Testamentary/Administration and want to apply for ancillary letters as there is an asset (bank account, Real Property etc.) located within the county. The Probate Court can tell you if can do this without an attorney and the forms you will need to file. You may be required to hire an attorney licensed in that state to apply for your ancillary letters.
SET UP AN ESTATE BANK ACCOUNT
Once the Probate Court has issued Letters Testamentary or Letters of Administration, the next step is to establish an estate bank account. To do so, you must obtain an EIN (Employee Identification Number) from the IRS, using IRS Form SS4. This number is the equivalent of a social security number for someone who is living. It is the unique identifier for the Federal/State government for the estate. All tax returns filed on behalf of the estate are also done using this EIN number.
The IRS should provide an EIN number within 24 hours of request, which you can then take to the bank of your choice.
All estate transactions should be made through this single account to provide a clear financial paper trail for later accounting to the Court. You should never use cash to maintain/administer the estate, but rather write a check from the estate account.
POST A BOND
Many estates will require an Executor/Administrator to post a bond, which would be specified in the will or mandated by the Probate Court. If this is the case, it is a simple procedure to contact a local bonding company to issue. The bond is intended to protect the heirs of an estate. The heirs have the right to object to how the Executor/Administrator is handling the estate and may ask to either block a transaction or have them removed: Absent bad faith or unreasonableness, this will usually be unsuccessful.
FOLLOW ESTATE LOAN PROTOCOL
Many times, there is not enough money “liquid” to administer an estate, making it necessary to obtain a personal loan (usually from a family member) for the estate until liquidation is possible.
If you are loaning money to the estate before Letters Testamentary/Administration are issued, be sure to establish a financial paper trail indicating where the money came from and for what it was used. Obtain invoices for any work you have done (i.e. snow removal/appraisals/ landscaping) or bills you pay and couple them with the proof of payment (returned check or credit card statement).
If you are loaning money to an estate after Letters Testamentary/Administration have been issued, deposit the money in the estate bank account before making any disbursements. You should only make disbursements out of the estate account and keep detailed receipts of what money was loaned, where it came from and for what it was used.
DOCUMENT EXECUTOR EXPENSES
It is understandable that you may need to travel for estate business, whether to meet with attorneys, attend Court, sell property, etc. Reasonable expenses will be paid by the estate; however, the estate may not reimburse extravagant expenses (for example, accommodations at a 5-Star Hotel) and could claim the Executor is defrauding the estate. You should keep copies of all receipts related to travel for the estate.
PAY ALL DEBTS
All estate debts must be paid BEFORE any monies are distributed to heirs (except for those assets that passed “outside of the estate”). Debts could include:
DISTRIBUTE ALL ASSETS
Once all debts have been paid, it’s time to liquidate or distribute the estate’s assets according to the mandates in the will or Intestacy Law.
As the Executor/Administrator, you are charged with managing the affairs of the estate and as such, most times a Court will approve you making business decisions (for example, selling Real Property or other assets) if you act in good faith and reasonably.
For example: The decedent owned a home and the Executor/Administrator has to determine a sale price. A grandchild feels the property is worth $1 million, however, due to a depressed real estate market the house only appraises for $800,000. The grandchild feels the real estate market will improve in the next five years and does not want the property sold at $800,000. Are you liable to the estate if you sell the property for $800,000? In most cases, the answer is no. You do not need the approval of the grandchild and may liquidate the assets of the estate in a matter that is in your opinion in the “best interest of the estate.”
If there are personal items or specific bequests written in the will, you should distribute them accordingly. The will’s mandates may make it necessary for you to sell some assets to be able to distribute money. If there is no will, you will distribute the assets in accordance with the state’s Intestacy Law.
FINAL ESTATE ACCOUNTING
An Executor/Administrator may be required by the Probate Court or one of the heirs to file an accounting, which details all of the estate transactions (bills paid, money distributed to heirs, taxes paid, income earned etc.). Your diligence in keeping impeccable records will be very helpful: Often, an attorney or accountant will prepare the accounting for the Probate Court.
PAY ALL OUTSTANDING TAXES
You may be required to file a Federal and/or State Estate Tax Return. It is often advisable to hire an accountant (preferably a CPA) to prepare and file the tax returns.
CLOSE THE ESTATE
You are now to the last and final step. Once the accounting has been filed and approved, ask the Probate Court for the required forms and procedures to close the estate. You should also close the estate bank account, but be sure to keep copies of all Probate paperwork for future reference