The Probate Process

Probate – the legal process through which a decedent’s assets, that are not automatically transferred at death to their “rightful” heirs by contract law, are retitled to the heirs via the court decree.

Probate with a will – individual dies testateo The will becomes an active document upon the death of the

will maker and establishes the legatees for the designated property

o Will must be “filed” with the court and accepted Probate without a will – individual dies intestate

o The state laws on intestacy are used to determine the heirs of property owned by the deceased

o Intestate laws vary from state to state

Property and Assets that typically pass outside of Probateo Life Insurance policies – designated beneficiaries receive

proceeds directly from insurance companyo Annuities – designated beneficiaries receive proceeds

directly from investment companyo Qualified Retirement Plans – designated beneficiaries

receive proceeds directly from plan administrators• IRAs (Individual Retirement Accounts)• SEPs (Simplified Employee Pension)• SIMPLEs (Savings Incentive Match Plans for Employees)• 401Ks, 403(b)s, or 457(b)s and Employer Plans (OSU - ORP)

o Property held in Trust and Pay on Death Accountso Automatic Survivorship Interests

Why a Probate Process?o Protect potential legatees and heirs

• Court process provides legal claims and challenges to will to have “hearing”

• Court protects the assets that otherwise might be converted into cash, distributed outside of probate denying the “will” of the owner

• Process to ensure proper retitle of assets (clear title)o Protect creditors

• Prohibit distribution of funds to legatees and heirs prior to payment of legal claims against estate

• Provides a process for potential claimants to be informed of death of individual (advertising the death and court for probate)

• Provide process to file claims against estate

Disadvantages of Probate (Reasons to avoid Probate)o Costly – the process may require legal fees to settle potential

claims, contest the will, pay administrator, etc.o Delays in distribution of property – process may take

anywhere from 4 to 24 months depending on the assets, claims, will, etc.

o Loss of Privacy – Wills and probate proceedings are public documents

o Non-traditional partners claims (and designations from will) can be set aside via challenge to will or outside intestate laws of the state

o (DOMA – Defense of Marriage Act) o Ancillary Probate for real property in a non-domiciled state

Issues for a Financial Planner?

The Probate Process -- At Death of an Individualo If a Will exists, present the Will to the Probate Court and

certified death certificateo If a Will does not exist, go to Probate Court and start

estate administration with presentation of certified death certificate

Court opens the “case” o Validation of the Will

• Self proving clause• Witnesses

o Appoints executor with a valid will (often individual named will)

o Appoints administrator without a valid will

The Probate Process -- At Death of an Individual (cont.)

Authority to Conduct Business of Court issued o Letter of Testimony issued to executoro Letter of Administration issued to administrator

Personal Representatives (executor or administrator)o Provides Court

• List of all known assets• List with names and addresses of all known heirs• List of all known creditors

o Notifies all potential claimants of probate hearing in community and legal newspapers

The Probate Process -- At Death of an Individual (cont.)

Administers Estate during the probate processo “Cares” for property during process – Marshalling the Assets

• Ensures that the property is properly maintained (for example, residential property upkeep and payment of bills for upkeep of property)

• Ensures that funds (checking accounts, investment accounts, etc.) are properly maintained

• Ensures that tangible property is not removed, destroyed, altered, or otherwise devalued during the process

• May conduct estate sales to convert tangible property into funds (depending on the will and beneficiaries of designated tangible property)

o At Conclusion of process – distribute property according to will or intestate laws as ordered by court

What are some of the issues around probate and the probate process for Financial Planners?o Does the client understand the ramifications of the legal

process and the documents used in probate (will)o Does the will have a self proving clauseo Does the named executor know about the appoint and

where the official will is stored?o Does the client have unusual requests in the will that

may be challenged successfully in court?o Does the will cover the non-probate assets or have a

residual property distribution for unnamed assets?o Other potential issues?