Wednesday, February 4, 2009

What is Probate and When is it Necessary

When a person dies, it may or may not be necessary to open a probate estate to transfer the assets of the person’s estate to his or her beneficiaries. Probate is the process by which a court oversees the collection of assets, the payment of creditors, and then the final distribution of assets to the beneficiaries of the estate. If the deceased had “individually owned” assets totaling less than $100,000, then a probate proceeding is unnecessary to transfer the assets. Retirement accounts and/or life insurance that have a designated beneficiary, and assets owned jointly with another person, are not individually owned assets and are not counted towards this threshold amount. Assuming the deceased’s individually owned assets total less than $100,000, then an interested person (who is usually a relative) may sign a small estate affidavit, which is a sworn statement that the value of the assets does not exceed $100,000, that the creditors of the estate have been paid, and that the assets will be distributed to the proper persons. Using this document, the family members may obtain the decedent’s assets from third parties, such as a bank. The Small Estate Affidavit is not effective to recover real estate or when the decedent’s individually owned assets exceed $100,000.

The “small estate affidavit” procedure allows people to avoid probate for modest sized estates. It also helps people who established trusts but failed to re-title all of their assets, so that they are “trust assets” and not individually owned assets. One common goal of an estate plan is to limit “individually owned” assets to under $100,000, through the use of trusts and other techniques. For example, any real estate could be re-titled into the name of the trust, and therefore, avoid probate. When done correctly, even a large estate can pass quickly to the beneficiaries rather than being delayed in probate.

In some cases it makes sense to open a probate proceeding regardless of the amount of the deceased’s “individually owned” assets. For instance, creditors have 2 years from the date of death to file a claim against a decedent’s estate that is not probated. If the decedent’s estate is probated, this period may be reduced considerably, to approximately 6 months after the date of death. For a decedent with potential creditor problems, it may make sense to open a probate proceeding to shorten the creditor claims period.

Through proper planning with an experienced attorney, a person can ensure his assets will be transferred in accordance with his wishes and in a manner that will avoid the necessity of opening a probate proceeding. Stotis & Baird has attorneys with experience that can answer any questions you have about estate planning or estate administration.

In a future article, we will discuss the Illinois Intestacy Statute and how it determines who receives the individually owned assets of a person that dies without signing a will or trust. It might not be what you would expect.

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