Estate Planning

Nancy Demeanor was always ready to take end runs around routine practices if she could save money. Miss Demeanor realized it was time to establish an estate plan so her considerable resources would go to the people she wanted to get them. Unfortunately, Miss Demeanor didn’t want to incur the legal fees necessary to create a plan, nor did she want her estate to have to be probated. Miss Demeanor was a very careful researcher, and in her research, she discovered that many bank accounts can name a person or persons to receive the account upon the death of the owner, much like the beneficiary of a life insurance policy. This was perfect for Miss Demeanor since almost all her assets were in one bank account or another.

Miss Demeanor had four nieces to whom she wished to leave her entire estate in equal shares. She, therefore, set about consolidating all her accounts into four equal accounts in her name. Account 1 named niece Rose as the person to be paid upon Miss Demeanor’s death. Account 2 named niece Violet to be paid upon Ms. Demeanor’s death. Account 3 named niece Iris to be paid upon Miss Demeanor’s death and Account 4 named niece Daisy to be paid upon Miss Demeanor’s death. Each account was in the exact same amount and paying the exact same interest. Miss Demeanor had accomplished her goal of having her assets pass to her nieces equally, without having to go through probate. She was pretty proud of herself.

Sadly, niece Daisy died before Miss Demeanor. Miss Demeanor was so distraught, she never gave a thought to her assets at such a stressful time. She died six months after Daisy. Since Daisy was not living, the account to be paid to her on death is part of Miss Demeanor’s estate, had to be probated, and went equally to the other three nieces as they were Miss Demeanor’s closest blood relatives.

Niece Rose was very solicitous of her aunt and spent a lot of time with her. Rose admired her aunt’s jewelry and Miss Demeanor promised Rose she could have all the jewelry upon her demise. Oops. Personal property cannot be designated to be “paid” on death. It must be devised in a will or other dispositive document. To the great joy of Violet and Iris, Miss Demeanor’s other surviving nieces, since their aunt left no will, under the laws of intestacy, they became equal beneficiary of all their aunt’s jewelry upon her death. And since the three nieces couldn’t agree on who got what jewelry, their aunt’s estate had to be probated to clear up the mess.

Shortly after creating her “estate plan”, Miss Demeanor’s old car up and died. As frugal as she was, Miss Demeanor had a weakness for expensive cars. She felt since she had been driving the same car for a number of years, she deserved something new and expensive. She could afford it. She purchased a top of the line BMW, with all the options. To pay for it, she withdrew $100,000.00 from one of her accounts. She briefly thought about doing something to balance the accounts again, and she had every intention of doing so, but never got to it before she died. Poor Violet ended up with an account with $100,000.00 less than Rose’s and Iris’s accounts, neither of whom were in any mood to share with Violet.

Payable on Death accounts can be a useful and cost saving part of an estate plan. However, as we have seen, there are pitfalls, and their use should be undertaken only after careful thought and planning. Regardless, they should be only one part of a well-planned estate. They are not fool-proof alternatives to wills and/or trusts.

The temptation to draft your own will, even a trust, may be strong. We see advertisements for forms that can be obtained online and easily adapted to various specific situations. Online forms are not necessarily “bad” but they tend to try to address every situation  using a “one size fits all” approach. If you are really in a “do it yourself” mode, there are some things you should first consider.

First and foremost, be sure you know what each paragraph in the form is saying and what each word in the paragraph means. True story – I had a very sophisticated, Harvard Business School graduate as a client many years ago. Although lawyers generally do not like to be asked to review documents prepared from online sources, I had worked with this individual for a long time and he was a very good client so I agreed to review the will he prepared using a form he found online. It was pretty generic in its approach and did cover almost everything a will should cover. But there was a big problem, the client got his terminology confused and, although he wanted to name me as executor of his estate, he actually named me the sole beneficiary of his estate. This was a nice gesture, but probably not what he really wanted! 

Secondly, online forms may omit something. Most obvious is that these forms tend to focus on distribution of assets and related matters after death and fail to consider protections that should be in place while someone is actually alive. Any solid estate plan in Massachusetts will include pre-directives such as durable powers of attorneys and health care proxies. See prior Insight Blogs where this is discussed. 

Thirdly, to be valid, a will must be executed following strict but essential rules. It is unlikely these rules are sufficiently outlined in an online forum. In Massachusetts, for instance, it is required that the signer of the will and all witnesses be in the same room at the same time for the entire duration of the signing process. If one of the witnesses leaves to take a phone call and is absent for just thirty seconds, the will can be deemed invalid. Also, although wills are not required to be notarized in Massachusetts, the better practice is to have them notarized. This can be overlooked in a self-drafted document.

Past Insight Blogs have touched on alternatives to a formal estate plan and, chances are, a devoted “do it yourselfer” will likely be receptive to this. Why even worry about an estate? You may decide to arrange your personal holdings so there are no assets to probate. There are ways this can be done but you should careful.

Most brokerage accounts and many bank accounts can designate that anything held in them to be POD (paid on death) to specific individuals. This can work, but if you have more than one account and more than one heir, it could get messy. Some people try to maintain equal balances in, say, four different accounts, each with a different child’s name on them as the POD recipient. This is fine until the owner needs money to buy a new car and uses one of the four accounts. Unless something is done, the child whose name is on the used account gets nothing but the other three get their inheritance.

Adding a child’s name to the deed of the house will allow it to avoid probate. But if the owner wants to sell or re-finance the property, they will need the child’s cooperation and signature. Probably won’t be a problem, but who knows? Having a child’s name on the deed can have other repercussions too. College applications for loans or scholarship could be impacted if the child’s name is on the deed as an owner of the house.  Also, if there is a divorce situation, this can have disastrous effects. 

The message here is to be very careful and consider all possible consequences of doing whatever you think you want to do. There are proven options to address all of this and professional assistance may save your family from a divisive and very expensive controversy.

Fred and Ethyl had three children, Mo, Larry, and Curley. They wanted to be sure the three kids inherited their home with as little cost and inconvenience as possible. A friend told them they had put their house in a trust for their benefit while living, then for the benefit of their children upon the demise of the second of them. Such an arrangement would get the house to the kids quickly and at minimal expense. That sounded pretty good to Fred and Ethyl, so they contacted their attorney to have a trust created. When the attorney told them how much it would cost, it didn’t seem like such a good idea after all. They asked the attorney what the cheapest option was. They were told they could sign a deed transferring title of the house to Mo, Larry, and Curley. The cost would be a small fraction of the trust option. But the attorney also said he would not recommend doing this as there were risks involved. The risks were explained to them, but they decided the cost savings outweighed the risks, so they signed a deed transferring title of their house to their three sons, as tenants in common in case any of the sons pre-deceased them.

Everything was fine for a few years. Then Mo and his wife developed marital problems which led to a filing for divorce. Mo and his wife had to file financial statements with the probate court. Mo did not list his interest in his parent’s home as an asset since, in his mind, the house was his parent’s not his. Mo’s wife knew about the transfer, however, and insisted Mo’s interest in the house be listed as an asset of Mo’s. The probate judge agreed and Mo’s one-third interest in the house, which was valued at $300,000.00 was added to Mo’s asset list. The divorce judgement reduced Mo’s share by $300,000.00. He was not happy. His wife (now ex-wife) was.

Larry’s marriage was secure. No divorce on the horizon. Larry was the brother who did almost everything right. He did not wait as long as his parents to create an estate plan. He and his wife signed wills leaving everything they owned to each other, then upon the death of the second, everything was to go to their children. They had three children who could be difficult at times. The one thing Larry did not do right was maintain his vehicles. He paid no attention to the puddle of fluid under one of his cars. Sadly, with all the brake fluid having leaked out, the car didn’t stop when he carelessly swerved into a tree driving home from a late-night party with his wife. They were both declared dead at the scene of the accident. Larry’s children had to probate his estate as well as their mother’s. Larry’s one-third interest in his parent’s house was part of his estate. His will left all his property to his three children in equal shares. Now the house was owned equally one-third by Mo, one-third by Curley and one-third by Larry’s three children. The three children wanted to get their inheritance and commenced a civil action to force the sale of the house. An expensive and emotionally draining experience.

Curley was the most laid back of the brothers. He was funny, likable and everyone’s best friend. But he was terrible with money. He was always in debt, always borrowing from anyone who was naïve enough to lend him money. Finally, it caught up with him. He had no choice but to declare bankruptcy, and he did! He had to include his interest in his parent’s home as an asset in his petition for bankruptcy. Now the bankruptcy court wanted to sell the house to help satisfy Curley’s numerous, and furious, creditors who no longer thought he was the funniest, most likeable friend they had.

So, however much Fred and Ethyl saved by not having a trust drafted cost the family dearly. Think twice about transferring your home, or any asset, outright to your children, or anyone else.

John and Mary, both in their early sixties, found each other after each going through a divorce. They were happy and after dating for a few months, they decided to get married. John’s three children from his prior marriage were delighted with their father’s happiness and happily attended the small, simple wedding ceremony. Similarly, Mary’s two children were pleased with the arrangement and they, too, attended the wedding. John sold his house and moved into Mary’s. John deposited the proceeds from the sale in his Fidelity account. The couple lived together quite happily for ten years. Then, quite unexpectedly, John died from a major heart attack. Not expecting this disaster, neither John nor Mary ever signed a will or related documents. It didn’t matter much since under the laws of intestacy, as John’s surviving spouse, Mary inherited a substantial portion of John’s assets with his children receiving substantially less. Apparently, not learning from John’s mistake, Mary procrastinated about doing a will herself thinking that doing a will might hasten her death. She never got around to it and a few years after John’s death, she also died. With no will in place, her assets were distributed according to intestate statutes. In Massachusetts, and probably in most states, intestate statutes provide that when there is no will, assets will be distributed to the decedent’s nearest relatives. In Mary’s case, that would be her children. Mary’s two children inherited all of Mary’s assets including those she received from John’s estate. John’s three children were less than happy when they learned Mary’s children would get everything she inherited from John and they would get none of it. Presumably, this is not the result John would have wanted either.

Had John and Mary planned properly this serious inequity could have been easily avoided. Here is what they should have done.

Clearly each should have a will in place. The wills could provide that all assets go to the surviving spouse, then divided equally, or in other proportions, to each of the children, Mary’s and John’s. This will work if things are left as stated. However, circumstances, and people, change, and so too can a will be changed. Bowing to pressure from children or yet another spouse, the survivor of John and Mary could easily do a new will with very different assets distribution.

Certainly, John and Mary should have wills. However, the way to ensure both families are protected, they should each also have a trust into which they should each transfer their respective assets. John’s trust could provide that upon his death, all assets in the trust would go to his children, or they will continue to be held in trust for Mary’s benefit and, upon her demise, then to his children. Mary’s trust would provide the same for her children. There could also be a third trust which hold title to assets acquired by John and Mary together of which all children are eventual beneficiaries, perhaps 50% to be shared by Mary’s two children and 50% to be shared by John’s three children. Or it could provide the assets be equally divided among the children.

Since these assets are in trust, they do not have to be probated and the laws of intestacy do not apply. The terms of the trusts will dictate how assets are to be distributed.

Although parents’ responsibilities may not change when their child turns 18, their rights do.

It is important that parents are aware of these dramatic changes that occur. 

From the day children are born, parents make decisions for them – financial decisions, medical decisions, lifestyle decisions, and many more. It is quite an adjustment to come to the realization that all of this changes when age 18 is reached. Eighteen is the age of majority.  In the eyes of the law, a child is no longer a child, but legally an adult. This means they get to make their own decisions and independently handle their own affairs. 

The change is most dramatic in the area of medical and health needs. Parents have always made these decisions for their children. To be told they no longer have the legal authority to do that can come as quite a shock. The realization of this often comes to light when a child is heading off to college and living apart from the family. If a medical problem develops while away, parents expect they will be contacted prior to treatment. Not necessarily. A medical facility is under no legal obligation to contact parents to discuss medical issues. It is required only to consult with the “new” adult.

Even close to home, if there is a medical problem and the child (now adult) is determined by their doctor to be unable to make medical decisions, their parents still do not have the legal authority to do so. The treating medical facility could insist that a guardianship be taken out so that someone does have legal authority to make these decisions. Imagine the added stress and expense if all of this happens while at school in a different state many miles away or when in an already stressful situation regarding their adult child’s health.

Parents are well advised to ask their children to sign documents to address this as soon after turning 18 as possible.

Most important is a health care proxy which gives someone else, likely a parent, the legal authority to make health decisions if the signer’s doctor determines he, she or they are unable to make decisions for themselves. This should be accompanied by a HIPAA release to allow access of medical records if necessary. 

A durable power of attorney is also recommended. This does for business, financial, and legal affairs what the health proxy does for medical issues without, of course, a doctor’s involvement. These powers are very broad in scope and will allow parents to handle almost any matter on behalf of the “adult child”. There are two types of these powers. The one most commonly used takes effect the minute it is signed, regardless of the signer’s medical condition. Less commonly used is a “springing” power. This form states that it does not take effect unless the signer is disabled and unable, because of the disability, to handle their own affairs.

Finally, having the student sign a FERPA (Family Educational Rights and Privacy Act) Consent,  which authorizes the college to release a student’s college records, can be helpful. This can be a broad, all exclusive grant or limited to certain specific records. Often a parent wrongly believes that they will be granted access to their child’s records because they are the ones paying the tuition. This is not the case and only will be released to the parent if a FERPA has been signed by the student.

All of these forms can be rescinded by the maker at any time. However, having them in place during college years, or the early years of employment, can avert serious and possibly expensive problems.

Please feel free to reach out to us if you have a soon-to-be young adult child or a child who has turned 18, but has yet to sign designee forms.

Although there are many middle-aged and elderly people who do not have wills or other estate plan documents, the percentage of young people who do not have these documents is far higher than those groups. The general feeling among this group is that they are young and do not have enough property to disburse upon death anyway. This may be true. However, when a young adult becomes a parent, having at least a will is immediately important and may be more important than in the future. The most important consideration for young people with young children is protection of those children. Even with little or no property, a properly drafted will should contain a provision nominating guardians for children under eighteen. Without a will that includes this language, if something happens to the parents, the person or persons who will care for and raise their children will be determined by a probate judge. It may end up being someone the parents would not want to raise their children. Nominating guardians in a will is just that, a nomination. Anyone can petition the court to be guardian and a judge eventually decides who it should be. The fact that the parents executed wills requesting certain people to be appointed will weigh very heavily in a judge’s determination and those nominees are nearly always appointed. Children are the most precious “asset” in a parent’s life. Leaving their care and upbringing to a judge who likely does not know the family is not something many  of us would want to risk. A young couple with children is well advised to have reciprocal wills, and directives such as durable powers of attorney and health care proxies.  Including a trust for the benefit of the children is ideal.

By mid-age, children have grown and may have children of their own. The estate planning priority is no longer guardians for children but rather ensuring that assets are distributed as desired. This is the time when a trust may be considered, along with other documents that will protect each spouse during their lifetimes, then be distributed to their children or other designated beneficiaries. A typical estate plan at this stage of life consists of reciprocal wills, durable powers of attorney and health proxies and a revocable trust to hold title to all assets.

Once again, the focus changes as we age, particularly if a significant amount of assets have been accumulated. Now, planning may include estate tax sensitive trusts and related documents. Certainly, documents like wills, durable powers of attorney and health care proxies are still important. The focus is still on spouses having sufficient resources to address their needs, or the needs of the survivor of the two, but eliminating or at least reducing estate taxes may become a priority as well. This is when multiple trusts may be warranted and division of assets between the trusts appropriate.

Focus could change once again when the fear of the need for a nursing home arises. Now a very different kind of trust is utilized, and very careful planning must be done.  This must be done while an elder is physically and cognitively sound. Whereas the trusts mentioned above are revocable and amendable, including those that help with estate taxes, the trust used in the context of protecting assets in a long-term care setting is irrevocable and not amendable. The elder gives up some control of assets, which is one of the reasons a younger person may not want to establish and fund this kind of trust.  Please reach out to us if you have questions.  Regardless of which phase of life you are in, we can help you plan according to your current and future priorities.

The cost of institutionalized long-term care (nursing home) can be devastating. Currently, nursing homes are charging in the neighborhood of $13,000.00 per month. Fortunately, MassHealth, through the Medicaid program, will pay nursing home costs, but only if you do not have the financial resources to pay privately. Eligibility requirements for Medicaid assistance are quite clear and do not allow individuals to keep much of their assets. 

This is what happens if one spouse of a married couple, then the other spouse requires institutionalized long-term care. If one needs care, the one staying at home will be allowed to keep the couple’s house, if they own a house, and, at the moment, about $130,380.00 in liquid assets (this increases slightly each year). All assets including retirement accounts and the cash value of most life insurance policies, are countable when determining eligibility. Everything above $130,380.00 will be countable assets and should be used to pay for the care of the first to enter a facility. When only $130,380.00 and the house is left, the first person entering the facility will qualify for assistance and MassHealth will pay the nursing home bill. However, that person’s income, pension, and social security, will have to go to the care facility. If, at some point, the second spouse also needs care, the $130,380.00 would have to be used to pay privately. When only $2,000.00 and the house are left, the second spouse would be eligible for assistance. However, MassHealth would place a lien on the house in order to be reimbursed for amounts paid to the facility for the second spouse to enter the facility. After about nine months, MassHealth would pressure the family to sell the house so the proceeds could be used to pay the lien and pay for future care privately. 

When the proceeds are all depleted, the second spouse would have to re-apply for assistance and eligibility would be granted. It is unlikely that it would ever get anywhere near this point. But it is not unlikely that a couple with moderate resources would have those resources eroded to nothing in a relatively short period of time.

There are steps that can be taken even in the late stages of planning. For example, if, upon the first spouse to enter a facility, all liquid assets above the $130,380.00 are used to purchase an annuity which is structured to have monthly payments made to the person staying at home.  The way Medicaid treats income is by having it go to wherever the person whose name is on the check is residing.  This would prevent the money from going to the nursing home and provide the person staying at home with an income stream.  This latter result will be extremely important if there is a large discrepancy in incomes between the two spouses, and the person with the higher income enters a facility.  This option should not be taken until it is clear which spouse will enter a facility first. 

It is also possible to put the house, other real estate and even liquid assets in a posture that will protect them.  This is provided if the planning is implemented at least five years prior to assistance being needed but there are still consequences involved. If such assets are transferred to an irrevocable, income only trust, they will be considered non-countable assets only after five years from the time they were transferred to the trust has passed. A transfer to an irrevocable trust, if done within five years of applying for assistance, would make the applicant ineligible for assistance for some period of time. 

To be effective, the irrevocable trust would have to be an income-only trust.  The couple creating the trust, as donors, would be entitled to receive only the income from assets owned by the trust. They would not be entitled to trust principal.  Consequently, only the income earned by the trust would have to be used to pay for care if needed, not the principal.  This is not a problem as long as the asset is the house in which the couple is living. It does not earn any income anyway. However, if the house were sold, the couple will be able to access only the interest earned on the proceeds from the sale, not the proceeds themselves.  The funds could be invested in another investment, either real estate or liquid, but they could not be used for the couple’s living expenses or to take a trip around the world for instance. If the proceeds were invested in a CD or other kind of bank or brokerage account, the couple would be allowed to get only the income earned by that investment, not the principal portion of it.  The five-year look back period will apply to the transfer of assets to the irrevocable trust. If you do not require care for five years after making this transfer, all assets in the trust would be protected and only the income earned by the trust will have to be used for care. Unlike in a revocable trust, the couple creating the trust cannot be trustees of this trust.  

Even though the trust is irrevocable, the creators of it do retain some control. They can change trustees and ultimate beneficiaries, for instance. And, of course, the assets can always be taken out of the trust, thereby eliminating all restrictions and limitations on accessing the funds. They would no longer be protected, however, and would again be considered accountable assets.

If you have questions on elder care long-term planning, please contact us for answers.

Very few people have to worry about Federal Estate taxes these days since the threshold at which those taxes kick in is 11.2 million dollars for an individual and twice that for a couple. In Massachusetts, however, the threshold is one million dollars for an individual and two million dollars for a couple. The taxable estate includes all assets including life insurance proceeds. Considering the value of real estate in Massachusetts, more and more people are subject to estate taxes.

There are ways to reduce a taxable estate such as making gifts while living. This should be done judiciously however, as once a gift is made, the asset is gone and you have no control over it. Gifts to tax deductible charities will also reduce the taxable estate. The fear of having to pay a gift tax is out of proportion to its real impact. There is no gift tax in Massachusetts. Gift tax is strictly a federal tax. The estate and gift tax credit is combined. A gift tax return would have to be filed if the gift is over $15,000, but no tax will be due. The amount of your credit will just be reduced by whatever amount that tax would have been without the credit .You can effectively give $11.2 million dollars away without incurring a tax. No gift should be made, particularly of real estate or securities, without consultation with an attorney and tax advisor as there can be other tax-related consequences.

If you are not in a position to make substantial gifts to individuals or charities during your lifetime, or would prefer not to do so, estate taxes in Massachusetts can be reduced and, in many cases, eliminated entirely with the implementation of an estate tax sensitive estate plan. Structuring such a plan is fairly complex. The way to do this is to create a series of trusts which are intended to allow both spouses to benefit from the one-time $1,000,000.00 Massachusetts estate tax credit to which we are all entitled. As the tax laws are currently structured, if one spouse dies, there is no need for the credit because there is no estate tax when a surviving spouse inherits, regardless of the amount. The credit on the death of the first spouse to die, therefore, is lost. Upon the death of the second, when everything goes to children or others, there would be a $1,000,000.00 credit but tax would have to be paid on essentially everything above $1,000,000.00. A tax sensitive structure would essentially leave the bulk of assets to the surviving spouse either directly or in trust (the “Marital Trust) and up to $1,000,000.00 to a trust for the ultimate benefit of children (or other heirs (the “family trust?”), but accessible to the surviving spouse during his or her lifetime. Since the gift to the second trust is not to a surviving spouse, it is taxed, but by applying the $1,000,000.00 credit to it, the tax is eliminated. Upon the death of the second spouse, the assets not left to the second trust go to the children or other heirs and are, therefore, taxed, but the second spouse’s $1,000,000.00 credit is used to reduce the tax. The funds in the second trust (the other $1,000,000.00) were theoretically taxed when the first person died so there is no tax on it when the second spouse dies. In estates up to two million dollars, using this method will eliminate Massachusetts estate taxes entirely. Estates in excess of two million dollars will incur a tax of approximately 7% of amounts in excess of the threshold.

We are often asked why trusts are helpful. There are many different kinds of trusts which are tailored to address a variety of situations. Some of these will be discussed in future insight  blogs. This article will simply give two true examples of how a basic revocable trust can be helpful.

In the first case, two brothers and a sister inherit their mother’s condominium equally. Because the condo was in the mother’s name alone, no one had legal authority to sign a deed transferring title of the condo. Mother’s estate had to be probated to have someone obtain legal authority to sell estate property, including the condo. A probate was opened and one of the brothers was named Personal Representative of Mother’s Estate. The sister wanted to purchase her brothers’ shares of the condo and they were receptive to selling it to her. At the time, the condo was worth $300,000.00 and all parties agreed that to be a fair price. The sister had to get a mortgage for $200,000.00 to assist her in the purchase. She applied for the financing and was quickly approved for the loan. A closing was scheduled, but before it occurred, the lending bank said it would not advance the funds because the mother had died only seven months before the closing date. Probate rules applied to the condo. When there is a probate, creditors have until one year from the date of death to file claims against an estate. The lender in this case felt that by allowing the transfer to take place before a year from the date of death passed would constitute a distribution of all estate assets and if a creditor appeared, there would be no assets available to satisfy the debt. The sister would have to wait three months before she was allowed to buy her brothers’ interest in the condo. Had the trust been held in the name of a revocable trust, the trustee of the trust would have authority to sell the condo and the closing could have occurred three months before it actually did happen. Probate rules do not apply to trusts in most cases.

The second example also involves creditors. This time, the house in question was in a revocable trust of which the decedent was trustee and beneficiary, but the decedent had named successor trustees and contingent beneficiaries of the trust. Since the house was the only asset of the estate, and since it was in a revocable trust which provided for the successor trustees and beneficiaries, there was no need to probate an estate. The successor trustee had legal authority to legally handle the house, including selling it. Unexpectedly, significant credit card debt of the decedent surfaced. Because there was no probate opened, there was no mechanism for creditors to submit claims against the estate. The debts were all eliminated and the heirs obtained the house free of all debt.

There are numerous other advantageous of revocable trusts including quick access to all assets including bank accounts, brokerage accounts, etc. Assets owned in the name of a revocable trust can be accessed and distributed fairly quickly after death occurs. Court fees are eliminated and legal fees minimized when a revocable trust is involved. Otherwise, the expenses and estate will not be finalized for at least a year from the date of death.

Almost everyone wants to avoid probate, and in most cases, this is a pretty good idea, but not always.

The probate process a system designed to ensure that the wishes of a deceased person as expressed in their will, are properly carried out and the interests of all heirs are protected, or, if there is no will, that heirs are protected by implementing statutes that protect them. It also provides a remedy for creditors of a deceased person, as it allows them to file claims against the estate.

Only Assets in the name of a deceased person alone, with no surviving joint owner, must go through probate. Until a fiduciary (Personal Representative) of the estate is appointed, no one has legal authority to access or deal with the assets held in an individuals name. Assets which name a beneficiary, such as a life insurance policy, do not have to go through probate providing there is a living beneficiary. Similarly, assets held in a trust generally do not have to go through probate.

The probate process is commenced by filing a petition with the appropriate probate court requesting someone be appointed Personal Representative (formerly called “executor” or “executrix”) of the estate. The petition is filed together with a variety of other documents as well as a certified death certificate and original will, if one exists.

There are two kinds of probates from which to choose. A “formal probate” is the procedure that was used for all probates prior to a recent reform of probate procedures a few years ago. It is still used, primarily in situations where it is possible that some dispute will arise.

In the formal probate process, once a petition is filed, the court issues a citation, which is notification that the petition has been filed and that the petitioner is requesting appointment as Personal Representative and sets a date by which anyone objecting to the appointment must file an appearance in the case. A copy of the citation is sent to all interested parties and is also published in a local newspaper. If no objections are filed by the stated date (called the “return day”), the petition will be allowed and the petitioner will be appointed. If there is an objection, a long process culminating in a hearing before a judge will follow. A Personal Representative appointed under this procedure must file an inventory of all estate assets and eventually an accounting reflecting all assets at the outset, plus all income received, less all expenses, including final distribution to heirs and devisees. The accounting must be assented to by all interested parties. Once again, if there is an objection the matter will be heard by a probate judge.

The alternative process is an “informal probate”. The process is begun the same way the formal process is begun, with the filing of a petition and related documents. However, no citation issues. The appointment of the Personal Representative is made shortly after the petition is filed providing notice has been sent to interested parties. Notice of the appointment is then published in a local newspaper in order to alert creditors, and others of the appointment. No inventory or account is required unless requested by an interested party. There are other documents required to be filed, however, in order to close the estate.

In both processes, the Personal Representative has a number of duties to perform. The decedent’s assets must be identified and gathered, final income tax returns, and perhaps an estate tax return must be filed, the decedent’s debts must be resolved, perhaps one or more parcels of real estate and other assets, such as automobiles, must be sold, heirs and devisees must be accommodated. This can be a big, thankless job.

Selling real estate is probably the task most often faced by a Personal Representative. If there is a properly drafted will, it will contain a clause empowering the Personal Representative to sell estate assets, including real estate. If there is no will, or no empowering clause, the process is much more involved and costly. Court approval will have to be obtained before the property can be sold. If court approval is needed, a petition for a license to sell has to be filed and, once again, interested parties can challenge the sale, including the amount for which the property is to be sold.

The cost of probate need not be onerous but will become so if objections and challenges are made either to the appointment of a Personal Representative, the accounting or to the sale of real estate. Any of these will increase the cost dramatically.

Probate is good to avoid if possible, but not always. The most common way to do this is by holding assets in a trust which directs how they are to be distributed upon the decedent’s demise. Since a trustee or successor trustee is in place, that person has legal authority to deal with trust assets so appointment by a probate court is not necessary. This means supervision of the process is minimal. In situations where there are numerous devisees, or devisees who have an acrimonious relationship, it might be a good idea to have the probate court involved rather than rely on a successor trustee.