PROBATE
“Probate” generally refers to the process of administering a person’s estate upon death. Probate is a process whereby:
- the decedent’s Will is analyzed to determine if it is valid;
- creditors of the decedent are given an opportunity to collect on debts; and
- ownership of the decedent’s property is legally transferred.
Here’s a simplified example that will help you better understand the probate process:
Let’s say that Tom Testator dies and leaves behind a Will that names his friend Ernie Executor as executor. The first thing Ernie should do is file Tom’s original Will at the appropriate probate court. Next, Ernie needs to pay the required probate court fee and get assigned a date to appear before a probate court judge. On the day of the hearing before the probate judge, Ernie will ask the court to rule that Tom’s Will is valid. Ernie will also ask the court to issue him Letters of Office. Once Ernie receives Letters of Office from the court, he will have the authority to serve as the executor of Tom’s estate. At this point, Ernie is said to have “opened a probate estate.” (Notice that while Tom’s Will indicated that Ernie should be the executor, Ernie does not have authority to act as executor until he receives permission from the court by way of the granting of Letters of Office.) Ernie will now work towards completing all of the probate procedures that are required by law. Now that the probate judge has determined that Tom’s Will is valid, and has given Ernie permission to serve as executor, what should Ernie do?
Ernie needs to give notice to Tom’s creditors that Tom has died and that Ernie is serving as executor. Ernie should give notice to creditors in two ways: First, Ernie should directly contact any of Tom’s creditors that Ernie knows of. Second, because Tom may have some creditors that Ernie is not aware of, Ernie needs to “post notice” to possible creditors in a newspaper.
Generally, what’s next? Ernie should gather and take control of Tom’s assets. Ernie should open a checking account in the name of the estate after obtaining a tax identification number for the estate. The checking account will be used to hold cash in Tom’s estate. The checking account will also be used by Ernie to pay the bills of the estate. For instance, Ernie may need to pay an attorney to help him properly complete all of the required probate procedures, including the filing of Tom’s final tax return and possibly a tax return for the estate.
After Ernie has gathered all of Tom’s assets and paid Tom’s creditors, he can distribute the assets of the estate to the individuals and/or charities indicated in Tom’s Will. After these distributions are completed, Ernie will petition the probate judge for permission to close the estate. If the probate judge is satisfied that all of Tom’s creditors were paid, that the legatees named in Tom’s Will received their share of the estate, and all of the required probate procedures have been completed, the probate judge will rule that the estate is now closed.
How long does the probate process last? Generally, the estate can be opened and closed within 7 to 9 months. Sometimes the process can take 1 year or longer, depending on the complexities involved.
Trust ADMINISTRATION
“Trust Administration” generally refers to the process of carrying out the terms of a written trust document. If you set up a trust during your lifetime (i.e., a so-called Living Trust), the trust administration process begins as soon as you sign your trust. If you set up a trust within your will (i.e., a so-called Testamentary Trust), the trust administration process begins after your death. The trustee is responsible for properly administering your trust.
Trust Administration during the trust-maker’s life. Unlike a will, a trust should not be put in your safe-deposit box and forgotten. You should take time to learn how to properly maintain or administer your trust. If you do not properly administer your trust during your lifetime, your family will likely be confronted with a greater burden upon your death, and perhaps even financial harm.
Trust Administration after the trust-maker’s death. Contrary to what many people think, even though probate might not be required because of the existence of a fully funded trust, that doesn’t mean that there are no steps required for proper trust administration after the trust-maker’s death. Indeed, post-death trust administration is a lot like probate without court involvement.
Here are some of the steps involved in proper trust administration after the trust-maker’s death:
- securing the original trust document(s) and providing copies to the beneficiaries and other interested parties;
- gathering all of the trust-maker’s assets and properly investing the assets during the period of trust administration;
- determining whether a legal notice to potential, unknown creditors should be published in a newspaper;
- paying the final debts of the trust-maker;
- keeping beneficiaries informed as to the process of trust administration, including an estimated time period for completion of trust administration;
- obtaining a tax identification number for the trust;
- filing the trust-maker’s final personal income tax return (Form 1040) and a tax return for the trust (Form 1041);
- filing state and federal estate tax returns for the trust estate;
- preparing a complete trust inventory and accounting; and
- making distributions of trust assets pursuant to the distribution provisions of the trust, and obtaining signed and dated Receipts on Distribution from each beneficiary.