“We need to probate the estate”. We hate having to tell a new client this after learning that the client’s recently deceased family member did not properly title his or her assets to avoid the probate process.
What is Probate?
Probate is the process used by states to settle the estate of a deceased person. The process usually runs several thousand dollars for even simple estates and far higher if there are complicated issues or family disputes. Probate is a process that includes:
- filing papers requesting the court to “admit” a will (if there is a will) to “probate”, and
- appointing the “executor” designated under the will to gather all of the assets,
- paying all debts of the estate and
- making distributions of the remaining estate to the designated legatees under the will.
If there are real estate holdings required to go through probate, the executor will list and sell the property and distribute the proceeds according to the will.
If the person who died (the “decedent”) dies without a will, then the state laws of “intestacy” will determine the beneficiaries who will receive the estate assets. The person applying to handle this is called the “administrator” and acts like the executor in marshaling the estate assets and making the distributions.
The probate process requires at least two court hearings:
- one to submit the documents to the court for its approval,
- and one court hearing to close the estate once the probate process is completed.
Further in Illinois, there is a period of six months from the filing of the order opening the probate estate for any creditors to make claims against the estate. Further, if the decedent owned properties in multiple states (example: a winter home in Florida) that are not properly titled, a probate estate will likely have to be opened in those states.
Many people have the misconception that by simply having a will they will avoid probate. This is not correct. Unless the title of a person’s assets name a beneficiary, are jointly titled with a surviving person, or are titled into a trust, the estate assets will have to go through probate. (Illinois has a Small Estate Affidavit form acceptable for estates less than $100,000 of assets, but does not include real estate which has to be probated if not titled properly).
The probate process delays beneficiaries from receiving their shares from the estate. Also, many families prefer to have their personal and financial matters kept private. Probate is a matter of public record. If the decedent died intestate or if the will does not include a waiver of a bond, a surety bond (usually in the amount of one and one-half times the estimated value of the estate) may be required by the court to be purchased by the executor/administrator to protect the estate.
All of this simply creates needless additional stress and costs upon the executor and family that are unnecessary had the decedent properly titled his or her assets.
Solutions
There are many ways a person can properly title his or her assets to avoid probate. These include, but are not limited to:
Payable-on-Death/Joint Accounts – As long as you are alive, the person you name to inherit the money in a payable-on-death (POD) account has no rights to the monies during your lifetime. You can spend the money, name a different beneficiary, or close the account as you desire. Upon your death, the designated beneficiary simply goes the bank with a copy of the certified death certificate, along with his or her identification and may collects whatever monies are in the account. Often spouses have “joint accounts” so that when the first spouse dies, the funds become the property of the surviving spouse.
Retirement accounts (IRA/401(k)) – When opening an IRA or 401k, be sure to list the name of not just the first beneficiary to the account, but also a contingent beneficiary. When it comes to withdrawing the money, surviving spouses have more options than other beneficiaries and you should speak to your accountant or financial advisor further. Too often we see where a spouse is named but no contingent beneficiaries (revocable trust, adult children, etc. designated) are named which may create issues down the road.
Transfer on Death Deed – Illinois provides for a transfer on death deed that must be prepared and properly executed and recorded just a like a regular deed. The differences are that you may revoke this deed at any time during your life and that deed states on its face that it is only effective after the death of the grantor.
Trust Planning – When a person establishes a revocable or irrevocable trust and places assets into that trust, those assets are removed from the probate process. The key is that the assets must be re-titled into the trust to avoid probate. We often tell clients to think of a trust a large empty bowl. In order for their assets to avoid probate that have to put their assets into the bowl. This is done simply by designating the trust on beneficiary forms for financial and investment accounts, large savings and checking accounts, etc. For real estate, a deed must be recorded that transfers the real estate into the trust.
Conclusion
There are many ways to title assets to avoid the costs, time and stress of going through probate. It is important for people to work with their accountants, attorneys and financial planners to make sure that they regularly review and update their planning to ensure that assets are properly titled and are consistent with the individuals goals.
If you are in search of legal advice regarding establishing a trust, creating a will, and/or, estate plan, please do not hesitate to reach out to an Illinois estate attorney at the law firm of Kovitz Shifrin Nesbit. You can reach us at 855-537-0500 or by find us online at www.ksnlaw.com.
This article is made available by the lawyer or law firm publisher for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By reading this article you understand that there is no attorney client relationship between you and the article author. This article should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. © 2018 Kovitz Shifrin Nesbit, A Professional Corporation.