|
|
|
The Probate Process
When an individual passes away, property that is held in their name must be distributed. There are different legal ways in which this can be handled. The manner in which it is handled is largely determined by the assets that an individual owns at the time of their death. The three most common forms of probate are: probate with present administration, probate without present administration, and informal administration. Each of these has advantages and disadvantages and will be discussed further below.
Probate With Present Administration
Probate with administration is what most people think of when as estate is probated. This means that the Will if offered for probate, an executor is appointed, and a separate taxable entity is created, (the estate). In this process, notice is published in the paper and notice is sent to all beneficiaries and heirs of the decedent. This process is used primarily for two reasons:
1. Real estate is held in the dependent’s name which needs to be sold.
2. The decendent owned stocks, bonds, mutual funds or had money in a bank which will only distribute the money to the executor of the estate.
Under Iowa law, once an individual dies any property they own become property of the estate. Iowa law requires that these assets be turned over to the executor of the estate. However, certain local banks will deliver the money to the beneficiaries under what is called a Release and Indemnity Agreement (discussed later).
In an estate with present administration, the following documents are commonly prepared and filed:
1. Documents to open estate;
2. Inventory;
3. Iowa Inheritance Tax Return;
4. Federal Estate Tax Return (if required); and
5. Final Report and Accounting
If an estate is probated with present administration, an executor is appointed whose primary responsibility is to gather all of the assets of the estate and make distribution pursuant to the decedent's Will. Letters of Appointment are issued to the executor.
If an estate is probated with present administration, attorney’s fees and executors fees are set by law and are 2% of the value of the estate.
Advantages:
You are able to transfer real estate, and able to liquidate brokerage accounts, mutual fund accounts, and bank accounts from non-local institutions. Also, all claims of creditors are barred four (4) months after notice of probate of the Will with present administration is published. This means that a creditor cannot bring an action against the executor after this four (4) month period claiming that a debt was not paid.
Disadvantages:
It is more time consuming and more expensive than the next two (2) methods.
Probate Without Present Administration
Probate without administration is used primarily in one (1) situation. An individual owns real estate which will not be sold for at least five (5) years and all of their other assets are held in local banks, no stocks or mutual funds are held, or if stock, bonds, mutual funds, etc. are held, they are held as joint tenancy or are payable or transferable upon death. In this situation, the Will is admitted to probate without present administration. This means that there are no formal court proceedings. Why is this done? If an individual purchases real estate, you receive a deed which shows you are the owner of the real estate. However, if an individual dies owning real estate, there needs to be some document that transfers the real estate to the new owner(s). The Will, when admitted to probate, acts as such document. Legally it is called a muniment of title.
In this process, the Will is admitted to probate and if no one challenges the Will within four (4) months, it becomes the valid Last Will and Testament and transfers title to real estate. However, the major disadvantage of this method is that the real estate is not marketable for five (5) years. That is, it cannot be sold, nor can it be mortgaged for at least five (5) years. No executor is ever appointed by the court. This sometimes causes confusion because banks normally ask for the executor's Letters of Appointment. If this method is used, the family must understand that an executor will never be appointed.
Advantages:
It is less expensive and less time consuming than probate with present administration.
Disadvantages:
Real estate cannot be sold for five (5) years, no Letters of Appointment are issued, and no executor is appointed.
Informal Administration
Informal administration is used primarily in three (3) situations:
1. When a spouse passes away and all property (both real and personal) is held in joint tenancy with the surviving spouse or children;
2. When an individual passes away and no real estate is held in their name and all of their assets are in local banks; or
3. When an individual owns a life estate in real estate and all of their other assets are in local banks.
If the decedent was married and all of the assets were held in joint tenancy, title to real estate can be changed by the filing of an Affidavit of Surviving Spouse. The other joint accounts need to be transferred to the surviving spouse's name and social security number. The Will is filed with the
Clerk, but not admitted to probate. This is a relatively simple and inexpensive process. One special note, if individuals have 100 accounts and 99 are in joint tenancy and one (1) is solely in the decedent's name this method may not work. Therefore, it is extremely important for a husband and wife to have all property in joint tenancy if they want to avoid probate. However, this method is not recommended if federal estate tax planning is an issue.
If all assets are held in local institutions, the majority of the time those can be released to the family members on a Release and Indemnity Agreement. A Release and Indemnity Agreement is an agreement stating that the estate will not be probated, that the person making the claim for the money is the rightful beneficiary under the Will and if it is determined that the money was wrongly delivered to the person, they will return the money. While there is no legal authority that exists that allows the banks to do this, most of the local banks will do it. However, if you venture only as far away as Mason City, Austin, etc., this method will not work. The majority of these banks will not deliver money on an Release and Indemnity Agreement and will require that an executor be appointed before distributing the funds.
If an individual passes away and has only a life estate in property which passes to lineal decendants and money in local banks, the estate can normally be handled by the filing of an Affidavit at the Recorder's Office and the preparation of a Release and Indemnity Agreement. However, special concerns arise if the person was receiving Title XIX benefits at the time of their death. While this issue is too complicated to discuss in this brief explanation, certain times an individual with only a life estate will still require the probating of the estate if Title XIX benefits were received prior to death.
Conclusion
This is meant only as a brief explanation as to the three (3) primary methods of handling an individual's estate. Each estate is different and has specific issues which should be discusses with our firm.
Please read our Notice/Disclaimer concerning use of this site.
|
|
|
|
|
