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Estate Planning for Financial Planners. Chapter 4: The Probate Process. Definition. The legal proceeding that serves to: prove the validity of existing wills supervise the orderly distribution of decedent’s assets to heirs

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estate planning for financial planners

EstatePlanning for Financial Planners

Chapter 4:

The Probate Process

definition
Definition
  • The legal proceeding that serves to:
    • prove the validity of existing wills
    • supervise the orderly distribution of decedent’s assets to heirs
    • protect creditors by insuring that valid debts of the estate are paid.
testate vs intestate
Testate vs. Intestate
  • Testate – Dying with a valid will.
  • Intestate – Dying without a valid will.
  • Legatee – Person who inherits under the will.
  • Heir – Person who inherits under intestacy laws.
advantages of probate
Advantages of Probate
  • Protect the decedent
    • Fulfill the decedent’s wishes.
  • Protect the legatees and the heirs
    • Orderly administration to prevent one heir from taking priority over the other.
    • Clean title to heirs.
    • Requires notice so descendents can claim their share.
  • Protect the creditors
    • Makes sure debts are paid.
disadvantages of probate
Disadvantages of Probate
  • Complex and takes time
    • Generally takes 6-24 months.
  • Monetary expenses
    • Court costs – 5 to 10% (some up to 20%)
    • Ancillary probate
  • Loss of privacy
    • Court proceeding open to public scrutiny.
nontraditional relationships 3 of 3
Nontraditional Relationships (3 of 3)
  • Avoid probate!!!
    • Family more likely to contest will
      • Jeweler
      • Anna Nicole
  • Other means of transferring to the non- traditional partner:
    • Lifetime gifts.
    • Named beneficiary.
    • Titling.
    • Trusts.
probate process 1 of 4
Probate Process (1 of 4)
  • Varies by state
  • General Process
    • Someone produces the will.
    • Takes the will to probate court (usually the domicile of the decedent).
    • Petitions to open the estate.
probate process 2 of 4
Probate Process (2 of 4)
  • Appointment of executor (testate) or administrator (intestate).
    • Letters testamentary (for executors) or letters administration (for administrators) are issued.
    • Surety bonds may have to be posted.
      • Decedent can waive it in the will for executor.
      • Waiver is generally valid unless out-of-state executor.
      • Administrators generally required by state law to post bond.
      • Premium: .5% - 1% of bond
executor
Executor
  • Estate’s personal representative appointed
  • Personal representative (executor or administrator) will manage and distribute the estate
  • Hearings after notice to interested parties
    • Notice of Petition to Administer Estate
      • Published in local paper: in Illinois: three consecutive weeks
executor1
Executor
  • Executor files probate petition within 30 days after nomination
  • Identify all beneficiaries and heirs at law
    • Notify within 14 days of will probate and right to contest will within 6 months
    • In Illinois, notify all who would be intestate heir
  • Bond: unless waived in will, equal to value of personal assets and one year’s income
probate process 3 of 4
Probate Process (3 of 4)
  • Accountings to the court
    • Executor files inventory of estate assets with court (in Illinois, within 60 days of appointment)
      • Public document
    • Also file annual accounting of income and expenses
    • Pay debts and costs.
      • From what assets?
probate process 4 of 4
Probate Process (4 of 4)
  • Manage and distribute estate.
    • Distribute specific bequests.
      • What if the asset no longer exists?
      • Ademption – extinction of right
    • Distribute remaining assets.
      • What if there are not enough assets to satisfy all bequests?
      • Abatement - reduction
probate administration
Probate administration
  • Creditors can file claims against estate
    • All known creditors must receive notice
    • Claims barred after 6 months of publications of notice or 3 months of mailing, whichever later
  • Distribution of assets
    • Can make preliminary distribution
      • Must be < 50% of estate
    • Final distribution: after 6 month claim period
  • Final estate accounting
    • Fees average 5 – 10% of estate value
      • Probate attorney
      • Executor
what passes through probate
What Passes through Probate?
  • Fee Simple Property
  • Tenancy in Common Property
  • Community Property
  • Invalid beneficiary designations
what passes outside probate
What Passes Outside Probate?
  • State contract law
    • Life insurance
    • Annuities
    • IRAs, SEPs, SIMPLEs, & qualified plans
      • Spouse presumed beneficiary of qualified plan unless consented to someone else
    • Pay-on-Death (bank accounts) & Transfer-on-Death accounts (investment accounts)
  • State titling
  • State trust law