By Bruce Alan Danford, Esq.
Exactly what is Probate? Probate is generally defined as the administration of the decedent’s estate. Administration includes collecting the decedent’s assets, paying the debts, paying any taxes, and distributing the assets to the heirs. Commonly there is a great fear of probate. Prior to acceptance by most states of the Uniform Probate Code that fear was probably justified. Prior to that time probate was marked by very expensive court proceedings, high attorney’s fees, and long delays. Since incorporation by most states of the Uniform Probate Code all of that has changed for the vast majority of Probate proceedings.
Probate is required when there are assets to distribute to heirs which do not pass by some other means and require distribution under the Probate system. Some assets which do pass automatically and are not part of the Probate estate include several general classes. These assets pass automatically either by operation of law or by a beneficiary designation. The general classes are:
• Property owned “jointly.” A very common example is where a husband and wife own their house jointly. The more correct term is “jointly with right of survivorship.” When property is owned in that manner, when one party dies the other party becomes the sole owner by operation of law. Example: Wilma and Harry own their home “jointly.” When Harry dies, Wilma will become the sole owner automatically by operation of law.
• Beneficiary designation of accounts. The most common of this type is the bank account or brokerage account where the decedent has designated a beneficiary to receive the account upon their death. When opening an account, most banks and brokerage firms will ask if there is a beneficiary designation. Example: Wilma and Harry own a bank account jointly with a “Pay On Death (POD)” to her sister, Sarah. When Harry dies, Wilma becomes the sole owner of the account (because it was a “joint” account. If Wilma then dies the account would then be distributed to Sarah.
• Beneficiary designations for life insurance. Life insurance benefits are paid to the policy’s beneficiary. Unless the insurance policy names the decedent’s estate as the beneficiary, the insurance money passes outside of Probate to the beneficiary. Example: Harry has a $100,000 life insurance policy with Wilma named as the beneficiary. When Harry dies, the $100,000 is paid to Wilma by the insurance company and it does not pass through Probate.
All other assets are part of the probate estate and will need to be distributed according to the probate process. There are three general means of distributing the probate Estate:
Different Probate Processes
• By Affidavit: If the probate assets are less than $50,000 in value, a successor of the decedent may execute an affidavit, claim the assets, and then distribute them to the heirs.
• Informally: Over 90% of probate in Colorado is by this process. Informal administration means it is not supervised by the court. There are a number of filings with the court but very seldom are any court appearances required. Most people are able to accomplish most of the work themselves with minimal assistance by an attorney. However, it is strongly recommended the Personal Representative does utilize the help of an attorney to avoid some pitfalls and delays. An overview of the process is as follows: An Application for Informal Probate of Will and Informal Appointment of Personal Representative along with the will is filed with the court in which the decedent lived.
• Letters Testamentary are issued by the Clerk of the Court to the Personal Representative (the old term was Executor).
• The Personal Representative places a Notice to Creditors of the death and sends a Notice to all known creditors.
• The Personal Representative gathers all of the assets of the decedent and performs and inventory which is filed with the court.
• After four months, the Personal Representative pays all of the creditors.
• The Personal Representative prepares a Petition for Final Settlement and Distribution which is filed with the Court.
• After court approval, the Personal Representative distributes the assets and files a final report with the court.
The above process is in general terms. There are several small steps or other steps required if there are disputes.
• Supervised: Supervised administration occurs when there are major disputes with the estate. If the parties cannot agree upon distribution of the estate, someone is contesting the will, or for other reasons there are disputes that cannot be resolved without the intervention of the court, the court will supervise administration of the estate. This is done in full, open court. This usually entails much greater legal costs and attorney fees. The process is performed under full court supervision and orders from the court. Fortunately, this is a very small percentage of all probate cases. The use of well drafted wills by an attorney can frequently save many, many times the cost of an attorney drafting a will in court costs later. The basic steps are similar to Informal administration.
Probate today in those states that have adopted some version of the Uniform Probate Code is streamlined and efficient. In Colorado, which has adopted a version of the Uniform Probate Code, over 90% of Probate proceedings are performed without direct Court supervision. In those cases the vast bulk of the work can be performed by family members with little assistance from an attorney. An estate administration can take as little as six months, for a simple estate, or as long as several years for large complicated estates.
It is always strongly advised the heirs or Personal Representative seek the help of a competent probate attorney in administrating an estate.
Bruce Alan Danford is a Colorado attorney and former Illinois CPA, with an LLM in Taxation, practicing in Broomfield, Colorado. Mr. Danford can be reached at 303-410-2900 or via e-mail at [email protected]