Elder Law and Estate Planning: The Probate Proceeding




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The Probate Proceeding

When a person passes away, accessing his assets to distribute them (in accordance with the deceased’s will or the rules of intestacy) may not be a simple matter. If the deceased had real estate in his own name, for example, no title company will recognize a deed that is sold or gifted by somebody other than him. Similarly, the deceased’s banks or financial institutions will not simply allow somebody else to access his accounts.

Even if the person seeking to take over the decedent’s bank account can produce a death certificate and a will naming her as fiduciary, banks will be exceedingly reluctant to turn over control of the decedent’s account. After all, the banks are not staffed by estate planning attorneys and are not experts at judging and interpreting will provisions. They will be justifiably concerned that allowing the wrong person control over the decedent’s account could cause them to be liable to reimburse the true beneficiaries if the person seeking control turns out to be an imposter.

As such, the only sure-fire method to gain control of the decedent’s assets is to bring a proceeding in the appropriate court to get a court order naming an “executor” or “administrator” of an estate. This proceeding is called a “probate” proceeding and the appropriate courts’ names vary by state. They may be called “probate courts” or “surrogate’s courts,” or, in the case of Maryland and Pennsylvania, “orphan’s courts”.

Petition

A probate proceeding starts with the completion of a petition of a person who purports to be the appropriate fiduciary to administer the assets of the deceased. If there is a will, this is usually the person whom the will names as “executor” or “fiduciary.” Where there is no will, this may be filed by a close relative of the deceased person, such as a spouse or child. Sometimes, in a small estate wherein a creditor (such as a credit card company) wants to gain access to the decedent’s funds to pay a bill, the creditor can commence the probate proceeding.

The petition contains basic information about the deceased person, such as his name, address and social security number, along with information about family members who would be his natural heirs. Then, the probate petition lists all the beneficiaries in the will, if there is one, along with all the named fiduciaries in the will (which means the people named as executor or administrator and as trustee of any testamentary trusts). The petition also must give the basics of the extent of the assets held in the estate. Because the person filing the petition (the petitioner) does not yet have access to the estate’s assets, the petition can only estimate the value of the estate and is not expected to be accurate. The estimation does, however, impact the probate court’s fee, and this fee will be adjusted if the estate later turns out to have a drastically different value than the initial estimates.

Probate Process

            Once the petition is filed and the fee paid, the probate court opens a file for the estate, which holds the petition and the relevant documents. If there is a will, the validity of that will must be proven either through affidavits or testimony from the will’s witnesses. The affidavits may be signed at the time that the will is executed. These are called “self-proving affidavits” and it is standard practice to have the witnesses execute these affidavits at the time of the execution of the will to avoid the need to track down the witnesses after the testator’s death. These affidavits will typically be accepted by the court as proof that the will is valid unless someone challenges their authenticity.

            Next, all the “necessary” parties to the estate must be notified of their rights to challenge the will or the appointment of the petitioner as fiduciary. Necessary parties typically mean people who are close relatives of the decedent, such as spouses and children, and people named in the will as beneficiaries or fiduciaries. The best-case scenario is that all such people consent to the probate of the estate and agree to sign notarized waivers of their rights to challenge the proceeding. If all necessary parties sign waivers and the will is confirmed by affidavit or testimony, the proceeding can be expedited to the next step. Otherwise, the probate court must set a date and time at which potential challengers to the probate proceeding can appear and state any grievances or challenges that they may have.

            If there are challenges, hearings or full trials may need to be scheduled to determine their validity. Otherwise, if all necessary parties waive their challenges or fail to appear by the appropriate time and date, the court can consider the will proven and valid. At that point, the probate court will award the fiduciary “letters of administration” (though the name of these documents may vary from state to state). This document gives the appointed administrator the authority to access, gather and distribute estate assets.

Administering the Estate

            Once the administrator is appointed, she can use the court’s authority to access the decedent’s accounts and assets. She can leave them in current accounts and retitle the accounts in the name of the estate (as in, “Estate of John Smith” instead of “John Smith”) or she can transfer assets into one bank or brokerage account in the name of the estate. At this point, the administrator may pay the expenses of the estate, including court fees, professional fees for attorneys, accountants and appraisers working on the estate and her own fee, as the administrator is entitled to statutorily determined compensation.

            The fiduciary must then carry out the dictates of the will, including making distributions, setting up any testamentary trusts and disposing of assets in the manner provided by the will. Assets may have to be managed, liquidated and negotiated over. Depending on the complexity of the estate, the administration phase can take months or even years. The latter is common when there are disputes as to how assets should be managed or distributed.

She must also direct the preparation and filing of estate tax returns, if necessary, keeping in mind timing deadlines that are applicable to these returns. If the estate earns income (such as interest or dividends) during its administration, the fiduciary must arrange for the estate to file income tax returns for each year.

Accounting and Winding up the Estate

                When the will or rules of intestacy have been carried out, it is time to wind up the estate. The administrator must direct the preparation of an estate accounting, which details the assets that she collected, the fees that she paid and the way the remainder of the estate was disposed of. The accounting is filed with the court with an affidavit from the administrator that the assets were disposed of properly.

            Once the court is satisfied that everything has been done properly, the court will issue a closing letter, certifying that the estate has been administered. If the estate filed estate tax returns, it also should receive closing letters from the IRS and the applicable state taxation department.

Conclusion

            The probate process can be time consuming and expensive, it is designed to ensure that the law’s requirements are carried out by the estate administrator and that all parties’ rights in an estate proceeding are protected.