By: Susan M. Strunk
You can’t take it with you when you go.
Everything you own will pass to someone else when you die. If you have a will, you have the right to specify who gets what when you die. If you don’t have a will, by default, a body of law (the law of intestate succession) gives you an estate plan.
The Mechanics of Succession
Probate and Nonprobate Property
All of your property can be divided into probate and nonprobate property at death. Probate property passes through probate under your will or by the law of intestate succession. Nonprobate property passes outside of probate by way of a will substitute. Today, since most personal wealth is held in financial assets, most property passes nonprobate.
When property is put in an inter vivos trust, a trustee holds it for the benefit of more than one named beneficiary. The trustee distributes the property to beneficiaries in accordance with the terms of the trust, avoiding probate. On the other hand, property held in a testamentary trust, which is created under your will, passes through probate.
Most bank, brokerage, pension, retirement, and life insurance accounts allow for pay on death (POD) or transfer on death (TOD) beneficiary designations. That means that the account custodian distributes the property at your death to those you named as beneficiaries.
When you own property as a joint tenant, your interest vanishes at death and the survivor owns the whole property free of your participation.
When you die, and probate is necessary, the first step is the appointment of a personal representative to oversee the winding up of your affairs. The personal representative is a fiduciary who:
- Collects and inventories the property of the decedent,
- Manages and protects the property during the administration of the estate,
- Processes the claims of creditors and files federal and state tax returns, and
- Distributes the property to those entitled.
If you die testate (with a will), your will names who is to execute (carry out the terms of) the will and administer probate estate, such personal representative is usually called an executor. If your will does not name an executor, the named executor is unable to unwilling to serve, or you die intestate (without a will), the court will name a personal representative, called an administrator. Administrators are selected from a statutory list in this order: surviving spouse, children, parents, siblings, and creditors.
One court in each county has jurisdiction over the administration of your estate. Each state calls these courts something different. In Michigan, it’s called the probate court.
Probate performs three core functions:
- Provides evidence of transfer of title to the new owners, making the property marketable again
- Protects creditors by providing a procedure for payment of your debts, and
- Distributes your property to those intended after your creditors are paid
When we say something is ‘going through probate,’ that means we are transferring property under the oversight and supervision of probate court. Only property passing through will or intestacy is probated. Otherwise, its nonprobate property and does not go through the court system unless something happens to drag it there.
Probate has a reputation of imposing needless costs and delays. Typically, probate takes one year. There are several filing fees, including the basic filing fee in Michigan to open an estate ($150). Publishing fees for creditor’s notices ($100). Appraisal fees to hire an appraiser to determine the value of the estate). Attorney fees vary from $250-$350/hour. Administrative fees can vary dramatically.
Is it a good idea to administrator a family member’s estate? Maybe not. It’s a hard line to walk and can be difficult on family relationships. When someone dies and money is involved, people sometimes get mad at the administrator.
Is probate necessary?
Probate can be avoided. During your life, you can arrange to transfer all of your property by way of nonprobate transfer. Then, probate serves as a back up function. Statutes in almost all states permit your successors to avoid probate if the amount of property is small, often referred to as a summary administration. “Small estates” range from $25,000-$100,000, depending on the state.
Why have probate, then?
Probate provides clear evidence of the transfer of title. Another reason to have probate is to ensure creditors are paid. At the same time, it closes the period for creditors to come forward. If you open a probate estate, after a certain period of time after publishing notice and/or informing known creditors, creditors cannot come after the money anymore. This is a good thing for a beneficiary.
Why do so many people die intestate?
Lawyers almost always advise clients to avoid intestacy, but, at best, half of all adults have a will. Some people procrastinate to avoid the unpleasantness of confronting mortality. Another reason is the time and cost involved. Increasingly, people make will substitutes. Will substitutes are things such as owning property as a joint tenant, using payable on death designations on life insurance, bank accounts, pension plans, or revocable trusts created during life. The primary objective of intestacy statutes is to carry out the probable intent of the typical intestate decedents. American intestacy law generally favors your spouse, then your children, then your parents, then more remote relatives. If there are no surviving relationships within the degree of kinship specified by the state’s intestacy statute, your property escheats to the state.
Estate planning affects us all. If you would like to make an appointment to discuss your estate planning goals, please contact Susan M. Strunk at firstname.lastname@example.org or 248.283.6639.