A Clear and Comprehensible Guide to the Specialized Topic of Probate For those who are suffering the loss of a loved one, dealing with the complex and often costly probate process can be just as traumatic. This concise guide explains the concepts of probate in simple language, fully outlining the steps you need to take and what you can expect. Martin Shenkman, an authority on the subject, provides practical advice, examples, checklists, tips, and definitions to help ease what might otherwise be a difficult and unpleasant task for the newly widowed or the heir trying to cope with the myriad issues surrounding a loved one's death. You will learn how to begin the probate process, how to hire professionals, who the various parties involved are, and what your responsibilities will be. This book will also aid in minimizing the costs and delays of probate and give you a clear picture of the legal process.
• Explains all aspects of probate in easy-to-understand language
• Includes state-by-state coverage of probate procedures
• Provides sample letters and forms to help you accomplish your goals
|Product dimensions:||8.48(w) x 11.04(h) x 0.73(d)|
About the Author
MARTIN M. SHENKMAN is a practicing attorney specializing in estate planning and administration and tax planning. He is the author of The Beneficiary Workbook and The Complete Book of Trusts, and is frequently quoted in the New York Times, the Wall Street Journal, and the Bottom Line.
Table of Contents
Probate Is Not a Four-Letter Word.
The Probate Process Step by Step.
LEGAL MATTERS AND COURT PROCEEDINGS.
How to Read the Will.
Probate Process and the Courts.
NUMBERS AND PAPERS: ORGANIZING, BUDGETING, AND INVESTING.
Getting Organized and Handling Accounting.
Investing Estate Assets.
Safe Deposit Boxes, Cash, Bank Accounts, E Bonds, and Marketable Securities.
Tangible Personal Property.
Real Estate and Business Interests.
Insurance, Pensions, Retirement Assets, and Annuities.
Miscellaneous Assets: Power of Appointment, Certain Trusts, Loans, Other Transfers.
EXPENSES AND LIABILITIES.
Income, Gift, Estate, GST, and Inheritance Taxes.
Tax Planning Is Still Possible after Death.
DISTRIBUTIONS AND WINDING UP THE ESTATE.
Distribution of Estate Assets.
Other Distribution and Winding-Up Issues.
1 PROBATE IS NOT A FOUR-LETTER WORD
The death of a friend, family member, or other loved one (called the Decedent) raises a host of emotional, personal, business, legal, and other issues. In the vast majority of situations, little advance planning has been done, and what is at best a difficult emotional and personal time is made worse by the need to deal with other nonpersonal issues. This book can help you minimize the business, legal, tax, and other issues so that you can focus your energies on what is most important-- comforting the mourners and helping them, and yourself, move on with life.
This book is primarily directed toward the person who manages and handles the Decedent's assets, including legal and tax issues (called the Estate). This person is called an Executor, Personal Representative, or Personal Administrator. However, there is valuable information for anyone dealing with the Decedent's affairs: those receiving money or other assets of the Decedent (called Beneficiaries), those charged with formally managing some or all of the Decedent's assets in trust for longer periods of time for the benefit of Beneficiaries (called Trustees), others concerned with the welfare of the Decedent's family and loved ones, and even many of the professionals involved. Because the Executor is the primary audience, this book is written to the Executor, whether or not the Decedent's assets have to pass through Probate (the courts).
A NOTE ON STYLE
The single most difficult aspect of Probate is wading through the jargon. Lawyers, accountants, insurance agents, and the Internal Revenue Service (IRS) all use technical terminology. If you can understand the buzz words, you will be well along the road of demystifying ying the Probate process. To help you out, there is a glossary at the end of this book. In addition, words that are capitalized in the text alert you that they are defined in the glossary.
Masculine and feminine terms have been used to make the text readable. There is enough complication in the Probate area without making it worse.
There was no intent to offend any reader, and unless otherwise specified, the information provided applies equally to either sex. Caution must be exercised when using the term children. Certain matters (such as state inheritance taxes and the right to inherit under state law if the Decedent died without a Will, for example) are influenced by the fact that the Beneficiary relationship is that of a child. In other situations, it may not matter whether the Beneficiary is a child or friend (e. g., the federal estate tax applies equally to any Beneficiary other than a spouse or charity). The term spouse specifically refers to a married person. Most aspects of the estate planning process will not have the same consequences to a married spouse as they will to an unmarried partner. Your sense of loss may be just as great, but the federal tax laws (such as the unlimited marital deduction) and state laws (such as the spousal right of election) apply only to spouses. Thus the term spouse should be understood to have this specific meaning. Do not substitute partner when you read spouse. If the surviving spouse is not a citizen of the United States, special rules apply so the general discussion of spouse cannot always be used.
SHOULD YOU GO IT ALONE OR HIRE A LAWYER?
You should never handle an Estate alone. Although this sounds self-serving from an author who is an attorney, read on (at least finish this paragraph). First, an estate attorney is not the only professional you need to involve. By hiring the right professional for each task, you will be better served and probably save significant costs. Second, the need to hire an attorney and other professionals does not mean you must spend a lot of money. It certainly does not mean that you need to be overcharged or subject to the many problems that are commonly associated with the Probate process. The key is to use professionals wisely. That is what this book will help you do. If the Estate is simple (and the size of the Estate has no bearing on simplicity), you may need no more than a quick one-hour consultation with an estate specialist to make sure that you are not missing anything. It is not worth the risk of not obtaining professional advice. Estate work involves so many nuances and technicalities that even most attorneys do not handle it. How can a nonexpert, possibly in the midst of one of life's most traumatic events, be expected to address all the issues? If you have the time, inclination, and ability to take care of some, or even most, of the Probate and related matters, advise the estate attorney and other professionals of your intent. In many, if not most cases, you can do a significant amount of the work and realize considerable savings (assuming you make sure that the professionals bill the Estate at an hourly rate). The key is to use professional advisers wisely to be sure all issues are raised; then allow them to take care of matters that you cannot, or do not want to handle. Finally, as Executor, you may be held personally responsible if certain transactions are not completed properly. If you distribute property incorrectly or overlook a creditor of the Estate, you can be held personally liable! Never assume, "It's all family," so it is okay. Family relationships have frequently been strained, if not destroyed, over Probate matters. Avoid the personal liability and minimize family friction by getting good advice.
The moral is do not go it alone, but go it smart. Probate does not have to be expensive, intimidating, or a big deal.
WHAT IS PROBATE?
Probate is simply the process of having the Will of someone who dies admitted to the Court. Once accepted, the Court will provide Letters Testamentary-- a formal document authorizing the Executor, the person responsible for the Will and carrying out the deceased person's final wishes, to do what the Will says. The real process only then begins. The Executor has to collect assets, pay bills, interpret the Will (almost always with a lawyer 's help) and file tax returns. This chapter highlights the costs, problems, and time delays Probate can create.
Once you understand generally what Probate and the related matters entail, and get through the jargon, much of what has to be done is common sense. The tax rules are complex (and for them you should rely on professional advisers), and sometimes the legal issues can be difficult. But most of the tax complexities tend to arise when a federal estate tax return has to be filed. For 1999, this requires a minimum Estate of $650,000. This amount increases to $1 million in 2006. The IRS has estimated that only about 1.5 percent of the Estates of people dying file federal estate tax returns. So few people are affected, and they can afford the professional help to address the issues involved. The legal technicalities also do not affect most Estates.
In the typical Estate, the Probate process can basically be summed up as getting the Will admitted to the Surrogate's Court so the Executor can obtain Letters Testamentary. The Executor then uses the authority of the Letters Testamentary to collect all the Decedent's assets, pay the Decedent's expenses, file any state tax returns, and then distribute the remainder as specified in the Decedent's Will (and/ or Revocable Living Trust). Although every Estate tends to have some nuances because of the Decedent's unique circumstances or wishes, they do not usually cause serious problems.
Why has Probate received such a bad reputation? For one, it helps sell living trusts and other legal work that may not always be necessary. If the professionals can keep you sufficiently confused through the adroit use of jargon, the mystique of the process can create an undeserved aura of complexity and mystery. This is good for beefing up bills, but is not good for you and the Beneficiaries involved. Do abuses happen? Sure. But they are not nearly as common as the media and hawkers of Probate avoidance gimmicks would have you believe. Amazing as it may seem, most clerks in Surrogate's Court are intelligent, helpful, and caring people. They often cannot do exactly what you want as fast as you want, but that is because they have to follow the laws of your state and the procedures established by the Court. Although the laws and procedures can create additional time delays and costs, that is not the objective. Most of the laws are designed to address the problems created when people don't plan. If you die without a Will (Intestate), state law tries to guess what a typical Decedent would want done. Thus, a bit of planning can avoid most of the problems. If you are already dealing with an actual Probate, it is too late. You will simply have to tough it out. If you are reviewing this book because you were named Executor, encourage the Testator (the person who signed the Will and who is still alive) to organize and plan now. It will make your job much easier.
GETTING PAST BASIC JARGON AND KEY CONCEPTS
The following paragraphs define important words used in the Probate process. You need to understand these terms and the key Probate concepts they represent.
Avoiding Probate is not the same as avoiding taxes, protecting your assets from creditors, and other important goals. Probate is technically the process of having the Decedent's Will admitted to the Surrogate's Court (although it may be referred to by a different name in your area) and the Court accepting the Will. Once the Will is admitted to Probate, the Court issues a document called Letters Testamentary (although it may have a different name in different Courts) stating your authority as Executor to act on behalf of the Estate. Although the process just described is Probate, in common usage all the work related to settling the Decedent's Estate-- paying bills, filing tax returns, distributing assets, selling a business, and so on-- is referred to as Probate. Most of the costs and time delays (except when someone challenges the Will) are incurred in the latter definition of Probate, and after the Letters Testamentary are issued.
The assets distributed by the Decedent's Will, and hence under the jurisdiction of the Court, are referred to as Probate Assets, or the Probate Estate. This is an important concept for many reasons. First, as Executor, you will only have control over Probate Assets. Assets that are not in the Probate Estate will pass to the designated Beneficiaries without your involvement. These include IRA accounts, which pass to the named Beneficiary on death; life insurance policies, for which the proceeds are payable to a designated Beneficiary on the insured's death; and jointly owned assets (when owned as joint tenants with the right of survivorship), which automatically become the property of the surviving joint owner. These assets are not part of the Probate Estate, but they can affect the Estate. For example, these assets are included in the Decedent's Taxable Estate (see following section). Thus, they can generate federal estate tax, even if they are not part of the Probate Estate. The distinction of Probate Estate and Taxable Estate is widely misunderstood and is the cause of many people neglecting to plan to minimize estate taxes.
The Taxable Estate consists of the assets (reduced by expenses and liabilities) that are subject to federal estate tax. One of the most confusing aspects of Probate is the difference between Taxable Estate and Probate Estate. Many people assume that if an asset avoids Probate it avoids taxation. This myth is often fostered by subtle misconceptions on the part of people pushing Revocable Living Trust products. The IRS does not care how the Decedent's assets are transferred. If the Decedent owned a rental property, the fair value of that property (reduced by any mortgage) will be included in the Taxable Estate. Whether the Decedent set up a Revocable Living Trust to own the property, or had the deed retitled to joint ownership with his brother, won't affect the tax consequences. Probate Estate merely refers to the assets passing under the Will. Taxable Estate includes all assets, passing under the Will or otherwise, that are included in the Decedent's Estate for federal estate tax purposes.
A Will (Last Will and Testament) is a legal document signed by a person, called the Testator (or Testatrix for a woman) that specifies how the assets of the Testator should be distributed after death (the Testator then is called the Decedent), who should serve as Executor to oversee the process, who should be responsible for minor children of the Decedent (called Guardians), and so on. The Will is usually prepared by a lawyer and signed in the presence of the lawyer, witnesses, and a notary. When you serve as an Executor, Guardian, or Trustee, the Will serves as your employee manual. You must read and understand it.
A Will is not the only document or legal mechanism that can be used to transfer the Decedent's assets following death. If the Decedent was married, the home in which the Decedent and spouse resided is almost always owned jointly. On the death of the Decedent, the house automatically (by law and without Probate) becomes the property of the surviving spouse. The legal document that creates this joint ownership for the house is a deed. The deed acts, when it indicates joint ownership, as a Will substitute since no Will is needed to transfer ownership of the house. Similarly, the Decedent's pension plan, IRA, annuity, and insurance policy all have beneficiary designation forms for specif ying who should receive that asset on the insured's death. These Beneficiary designation forms serve as Will substitutes. Where assets pass to the intended Beneficiary under a Will substitute, they are not part of the Probate Estate.
Testamentary is anything that occurs at death. If the Testator set up a trust while he was alive, the trust would be called a Living Trust or an Inter Vivos Trust. Trusts are frequently set up under the Decedent's Will. These are called Testamentary Trusts.
How Steps to Avoid Probate Affect the Process
People often take many steps to avoid Probate by using Will substitutes such as Beneficiary designation forms, Revocable Living Trusts, joint ownership of assets, and payable on death accounts. When properly planned and implemented, these steps can save the Estate substantial money and time, and make your job as Executor much easier. Unfortunately, if not properly planned and implemented, these steps can create potentially serious problems that you as Executor may have to address. Too often, steps are taken to avoid the purported evils of Probate with little understanding of the costly consequences these steps create. The cure is often worse then the illness.
A Revocable Living Trust can be used to avoid Probate, according to the simple technical definition of having the Will admitted to the Court and receiving Letters Testamentary. But it avoids none of the other aspects of the Probate process. Typically, when a Revocable Living Trust is used, a Pour Over Will is used as well. The Pour-Over Will is a Will that basically says, take all the assets of the Decedent that are subject to Probate and pour them into the Revocable Living Trust which the Decedent established so the Trustee can distribute all the Decedent's assets (both Probate Assets passing under the Will and nonprobate assets which are already in the Revocable Living Trust). As Executor, you may have to concern yourself with reading and understanding two legal documents, the Will and the Trust if you are both Executor and Trustee. You must also figure out any differences between the two documents and what they may require of you. Finally, if the Decedent did not name the same people as Executor under the Will and Trustee under the Revocable Living Trust, you may have to make these decisions in conjunction with others. All these factors create complications and potential traps you may have to address.
Revocable Living Trust
A Revocable Living Trust (sometimes called a Living Trust, Revocable Inter Vivos Trust, or Loving Trust) is one of the most talked about estate planning techniques. Revocable Living Trusts can be used to avoid the expenses, publicity, and delays of Probate. Although they are the most commonly thought of Probate avoidance technique, they are not the most widely used technique. Joint ownership of assets, payable on death bank accounts, and Beneficiary designations on insurance and pension assets are far more common.
A Revocable Living Trust is a Trust that the Decedent set up during his lifetime. On death, the Trust provides for successor Trustees to manage the Trust assets. The Trust includes provisions that take effect on death that serve the same purpose as a Will to govern the disposition of the Decedent's assets. Thus, other than the technical procedure of an Executor obtaining Letters Testamentary for a Will, the responsibilities and functions of the Trustee under a Revocable Living Trust are quite similar. When the Decedent has Probate Assets under the Pour-Over Will, as well as assets held in a Revocable Living Trust, you may have to reconcile different provisions in each document. For example, each document may provide Specific Bequests (exact dollar amounts to be distributed to different Beneficiaries), contradictory Tax Allocation clauses (which assets are used to pay tax), and even inconsistent directions on how expenses are paid. If these issues arise, get professional help.
HOW TO USE THIS BOOK
Read Chapter 2 to get an overview of the entire Probate process. If you can keep the big picture in mind, the technical minutiae that arise will be much more manageable. Next, read Chapter 3 to understand which professionals you should hire, how to select professionals, how to retain them, and how to minimize their fees. Then hire professionals and organize the Estate's professional team. Set up these appointments as quickly as possible so that you do not fall into any complex technical traps. Meeting with professionals very early on in the process can assure that you get the right start, identif y the problems and issues to deal with, and avoid losing out on important tax benefits. Then use the guidance the professionals gave you at the initial meeting as the starting point for reading the rest of this book. Read and review sections applicable to you so that you can best work with the professionals you have hired, keep their costs under control, and understand the process.
WHERE TO GET MORE FORMS FOR FREE
For free sample Probate forms and planning tips, see the Web site www. laweasy. com. New forms and planning tips are added about every three months. Send questions or comments to the e-mail address laweasy@ worldnet. att. net.
This chapter has given you an overview of the Probate process, defined many of the key terms and concepts so that you can understand what is involved, and offered important advice on hiring professionals and using this book to guide you. The next chapter provides a full overview of the Probate process in the chronological order you will most likely have to address each issue. The rest of the book then addresses those points in detail.