When a loved one dies it can be difficult to know how to access their assets, manage their mortgage and other debts, and wind up their affairs. With limited exceptions, the only way to access assets owned by a person in their individual name is through probate, even if they have a valid will. Many people have no idea what probate is — only that they know they want to avoid it. The fictional probate case of Jarndyce v. Jarndyce featured in Charles Dickens’ novel Bleak House paints the probate process as a hopeless morass; a quagmire in which the only beneficiary is the legal system itself and the lawyers, clerks and judges within it. Fortunately, probate has come a long way since Charles Dickens’ time, and I intend by this article to demystify it for you.

Probate is a legal process required to access a deceased person’s assets and pay their debts. Probate only deals with assets held by a deceased person (a “decedent”) in their name alone and does not involve assets owned jointly with another person, assets that pass by beneficiary designation (such as life insurance and retirement plans), or assets owned by a trust. If the decedent left a valid will, the probate court will appoint the party named in the will (and qualified to act) as the executor. The executor is tasked with collecting the decedent’s assets, paying their debts and disposing of what is left over in accordance with the provisions of the will. If there is no valid will, the probate court will appoint a person to act as administrator to collect the assets, pay their debts and distribute the remaining assets to the decedent’s heirs in accordance with state law. When a person dies without a will, state law provides which heirs are entitled to receive the assets and in what proportion (often called the law of descent and distribution). State law also provides who is entitled to nominate or act as the administrator, according to an order of preference.

Probate law has developed over centuries to account for a variety of situations and deal with them as fairly as possible. However, your state’s probate laws may not line up with your personal preferences. Accordingly, if you want to ensure the right people receive your property on your death and that the right person is appointed as executor, it is best to create a valid will.

After a loved one dies, it is necessary to engage a lawyer to prepare the required documents to apprise the court of certain information, including the approximate value of the decedent’s assets, whether the decedent left a valid will, and the identity of the heirs who would receive the property if there was no valid will. Certain notices are required to be given to the beneficiaries named in the will, as well as the heirs who would be entitled to receive the decedent’s property if there was no valid will. In this manner, all interested parties are given notice of the opening of the probate estate and an opportunity to challenge the will, if applicable. The probate court will examine the original copy of the will and make a determination as to whether it was validly signed and witnessed. If the will is determined to be valid on its face, an interested party may file a challenge to the will’s authenticity or the decedent’s capacity to execute it, within a certain time period.

The probate court requires the person seeking to act as the executor or administrator to obtain a surety bond in an amount sufficient to insure the assets of the estate. This surety bond requirement may be avoided if it is waived in the will. The surety bond is essentially an insurance policy covering the assets of the estate and is typically required to be renewed annually until the estate is closed. In addition, the executor or administrator is required to publish a notice in a local newspaper to all potential creditors or claimants of the estate with a deadline for filing claims against the estate. The probate estate must remain open and assets sufficient to cover all claims should not be distributed to the heirs or beneficiaries until the claims period expires. In Illinois, the claims period is six months from the date of publication of the claims notice, or two years from the date of death, whichever is earlier. However, states vary widely as to the length of the claims period.

Once an executor or administrator is appointed by the court, the court will issue a document often known as “letters of office” confirming that the executor or administrator is authorized to manage the assets and liabilities of the estate. The executor or administrator uses this document as proof of their authority to act on behalf of the estate when they go about administering the estate. Administering the estate involves collecting the decedent’s assets (for example, from banks and other financial institutions), managing and/or selling real estate or corporate interests, preparing and filing tax returns and dealing with creditors (such as mortgage holders and credit card companies) and any other potential claimants.

The executor or administrator may allow and pay creditor claims or reject them. If a claim is rejected by the executor or administrator, the claimant may file its claim with the probate court and the court will determine whether the claim is valid. Once the assets have been collected, valid debts and expenses of estate administration have been paid, and all necessary tax returns filed, the attorney will prepare an accounting on behalf of the executor or administrator and submit it for approval by the beneficiaries (in the case of a will) or the heirs (if there is no will). Once the accounting is approved and signed receipts have been obtained from the beneficiaries or the heirs (as the case may be), the estate is ready to be closed. The attorney will prepare the documents necessary to close the estate, present them to the court and obtain an order closing the estate and discharging the executor or administrator from their duties.

The probate process is designed to protect a person’s wishes expressed in their valid will, and to balance the interests of their beneficiaries, heirs and creditors. However, especially if you do not have a valid will, probate is a “one-size fits all” solution that does not always produce the best results for your loved ones. Moreover, even if you have a valid will, going through probate can be a time-consuming and expensive endeavor that can and should be avoided, if possible. Next quarter, please watch for my article about how to avoid probate and the advantages of preparing a trust-based estate plan.

Footnote:

1 Some states offer an alternative to probate court for small estates with assets below a certain amount. In Illinois, for example, this is known as a “Small Estate Affidavit” and can be used when assets otherwise subject to probate are below $100,00 in the aggregate.

For more information on this topic, please contact Christian Manalli ([email protected]) by e-mail or call (312) 648-2300.