Chapter 4 study Guide

Cate owns the following property: • A personal residence titled as sole ownership fee simple valued at $400,000. • A $500,000 life insurance policy on her own life. The named beneficiary is Cate's brother James, who died 6 months ago leaving two children, Michael and Carol. • A car valued at $20,000 titled JTWROS with Cate's mother. • An IRA valued at $200,000 with Cate's mother as the named beneficiary. What is the current value of Cate's probate estate?

$900,000. Life insurance policy that doesn't have a clear title has to go through probate

State Contract Law: Totten Trusts, Pay on Death Bank Accounts, and Transfer on Death accounts for investment accounts with named beneficiaries

-Accounts designated as "Held in trust for another". - Are not joint accounts, and the named beneficiary does not have any rights to the account while the owner was alive. -They are merely bank accounts with beneficiary designations. -For Bank accounts(PODs) and Investment Accounts(TODs). -Similar to retirement account or IRA in naming beneficiary. -Most have similar transfer device for either bank accounts or investment accounts, with over half of the states having transfer devices for both types of accounts.

State Contract Law: IRAs, SEPs, SIMPLEs, and Qualified Retirement Plans

-Allow owners to name a beneficiary. At death of the account owner, beneficiary receives assets from retirement account. -Custodian of the plan or account has a contract with the owner of the account and is directed upon the owner's death to pay the beneficiary upon receipt of a certified death certificate.

State Contract Law: Life insurance

-Company contracts with owner of the policy and agrees to pay death benefit to the name beneficiary upon the death of the insured. -Company acts as agent of the owner. -To collect proceeds, simply provide a certified copy of the death certificate to the insurer. -Help meet the many immediate liquidity needs that arise when someone dies.

Probate costs

-Court costs - varies by state; sometimes is a percentage of the probate estate --In Wisconsin, 0.2% of probate estate --Example: $500,000 probate estate x 0.2% = $1,000 -Probate bond (if not waived in the will) -Fees paid to personal representative and the attorney

Outside of Probate Property process: State Trust Law

-Has already been retitled because when the grantor of the trust transferred the property into the trust, it had to be retitled as trust property. -Even in case of revocable trust, trust becomes irrevocable upon grantor's death. - is managed and distributed according to the specific provisions of the particular trust and has no further need to be retitled.

Duties of executor/personal rep

-Identify and collect the decedent's assets -Manage those assets during the probate process -Post legal notices -Pay debts, claims, taxes and probate admin expense from assets in probate estate -Distribute the estate

Duties of court-Appointed Executor or Administrator

-Identify and produce a detailed list of decedent's property/assets. -Safeguard, manage and invest assets -Give legal notice to creditors and heirs/legatees -Pay the estate's expenses. -Pay the debts and taxes of the decedent -collect revenues, interests, rents, etc, during the estate -file all federal, state, and local tax returns timely -make appropriate tax filing elections -distribute assets to heirs/legatees as appropriate. -Close the estate with the court.

Probate issues: Non-spouse or non-family beneficiaries

-If the goal is to pass assets to individuals other than spouses or family members, better to avoid probate -Other options include titling choices, lifetime gifts or life insurance

Outside of Probate Property process: State Titling Law

-JTWROS and TIC pass outside of the probate process because of the automatic retitling mechanism of the survivor-ship feature. -At the death of the joint tenant, his or her interest passes automatically to the surviving tenant, or in case of TE, to the surviving spouse. -Surviving joint tenant must produce a certified death certificate of the decadent in order to transfer title.

Probate Defined

-Legal process by which a decedent's assets are retitled in the name of the legatees (heirs). -Latin: Probare - to prove or test -End Goal: Clear Transference of Title

assets that Bypass probate

-Property titled in joint ownership -Life insurance payments -Retirement account assets that are payable to a beneficiary other than the estate

State Contract Law: Annuities

-Similar to life insurance, where named beneficiary can be selected by the owner of the annuity. At death, beneficiary will receive death benefit for life, term, or a cash payment. -Death benefit settlement option has been pre-selected by the owner, or if not pre-selected the beneficiary may choose any one of the settlement options allowed under the contract.

Assets that pass through probate

-Solely owned property -Tenancy in Common property -Community property -Invalid beneficiary designations to contracts or "To My Estate"

General probate Process

-Someone produces the will -Someone (typically the executor or personal rep) takes the will to probate court -Someone petitions to open the estate -The executor or personal rep (testate) or administrator (intestate) is appointed -VARIES BY STATE

Wisconsin Probate - Creditors

-Surviving spouses and joint account holders are usually liable for debts incurred during the marriage -Secured debts will need to be paid otherwise the creditor can repossess the asset -Unsecured debts fall to the probate estate; if there isn't enough money in the probate estate, unsecured debts will go unpaid -The Executor/Personal Representative notifies creditors ASAP of the death

Which of the following items is included in a person's probate estate?

A closely held business interest. -Life insurance proceeds is part of gross estate, Not probate estate.

Which of the following statements is false?

A person dying without a will is known to have died interstate BRUH: "Interstate" should be Intestate

Testate

A person who dies with a valid will

Interstate

A person who dies without a valid will.

Outside of Probate Property process: State Contract Law

Allow the client to select designated beneficiary to whom the property will be transferred. The selected beneficiary will directly receive title to the property at death of the owner. However, before death of the owner, The selected beneficiary does not have any rights to the property; since the owner of the property can change, amend, or revoke any revocable beneficiary selection. The contractual beneficiary designators are easy and efficient mechanisms to avoid probate process, as there is no need for the asset to be retitled, since title is transferred automatically to the named beneficiary.

Problem Distribution: Ademption

Assets specifically bequeathed to legatees may have been disposed of prior to the decedent's death. In these cases, unless the testator has provided some alternative asset, the legatee is not entitled to any replacement asset. Referred to as the Extinction of legacy.

Describe the probate process 1) Beginning the probate process-Producing the will

Clients should be advised to let trusted individual, usually executor, know where the will is located. If the will is in a safe deposit box, banks will generally open safe deposit box for the sole purpose of removing will after receiving proof of death. It is also advisable for family to obtain multiple certified copies of death certificate for insurance, social security, probate and other purposes

You are reviewing the group benefit plan statements of two married clients. You notice that they have designated each other as beneficiary of their respective group life insurance coverage. Their wills call for the establishment of a testamentary trust upon the first death. How should they proceed?

Discuss whether there is adequate funding for the testamentary trusts.

Letters Testamentary

Empowers the executor to act as the agent of the court. In the case of the valid will in which the executor is named, the probate court usually accepts the appointed individuals as executor and provides that person with powers.

Per Stirpes

Fast pronunciation to be left to children who survive me Sometimes called "Taking by representation" directs that the deceased person's designated share of an estate is transferred to his heirs.

Joe appointed his son, Mike, age 30, as his power of attorney for all property. Joe recently passed away leaving a sizable estate which includes a number of investment accounts, real estate and retirement plans. His will names his wife, Lisa, age 65, as his sole executrix and calls for an outright distribution to her. Lisa is unsure if she wants this responsibility. Which of the following options are available to Lisa?

Hire professional advisors to help her to administer the estate.

Which of the following assets will pass through probate?

Household goods left to family members via a side letter.

Determine which individuals must post a surety bond?

If an administrator is appointed by the court, then they must post a bond. Requirement can be waived by the will or by the heirs and legatees, states generally will not allow the bond to be waived if an executor is named that is not a resident of the state in which the probate process is occurring.

Letters of administration

In the event of intestacy, or where an executor cannot be appointed by the probate court, the court will appoint an administrator (Generally a family member of the decedent who has largest interest in the estate. The court provides individuals appointed as administrator with powers

Advantages of Probate: Protect the Decedent

Individuals with Testate will are considered to have given great consideration to whom and how their assets will pass. The probate court will generally honor wishes by the decedent in will. Exceptions include of proven fraud or undue influence by a legatee or third party regarding decedent or in cases where the decedent lacked mental capacity to execute will. Since the probate process is the legal process used to implement disposition objectives of testator, testator is assured that his desires will be followed.

Describe the issues associated with nontraditional relationships as they relate to the probate process?

It is advised that non-married couples avoid probate if the goal is to pass assets to a non-traditional partner. There have been # of cases where family members of the decedent contested the will based on undue influence by nontraditional partner. Some courts have held the will of the first deceased partner to be invalid, thus leaving the nontraditional, surviving partner without the assets the decedent intended.

Advantages of Probate: Protect the legatees and heirs

Legatees and heirs are generally the parties with the largest interest in the probate process. The Probate process provides for an orderly administration of the decedent's assets. Thus, it prevents one legatee or heir from having priority over another of equal rank

Which of the following documents empowers an administrator to act as the agent of a probate court?

Letters of Administration.

Transfer of Assets

May be transferred and retitled through probate process, by contract law, by state titling law, or by trust law

Daigne and Ohle have been in a long-term, non-married, non-traditional relationship. Daigne wants to make sure that if he dies first, Ohle will be provided for. Which of the following would you be likely to recommend to fulfill Daigne's goal of transferring assets to Ohle at Daigne's death?

Name Ohle as the beneficiary of Daigne's retirement plan.

adminstrator

Petition court for appointment, put up security bond, court selects, court issues letters of administration

Disadvantages of Probate Process: Monetary cost of Probate (costs)

Probate may also have a large monetary cost. The legal notice requirement, attorney's fees, and court costs are just a few of the expenses that are included in the probate process. The average probate process generally consumes 5 to 10% of an estate in legal fees and administrative costs, with some estates losing up to 20%. This can result in a significant reduction in total dollar value of assets that will pass to the decedent's heirs. Real property located in a state outside the testator's domicile requires a separate ancillary probate in situs state.

Advantages of Probate: Increases chance that parties of interest have notice of proceedings and a right to be hear

Probate process generally requires executor of administrator of an estate to advertise upcoming probate proceeding for statutory period of time in legal newspapers and a newspaper of general circulation in the county where the decedent was domiciled. Gives interested parties notice of the death of the decedent and an opportunity to participate in the probate process. It also allows heirs and creditors that may not have been recognized or absent legatees the opportunity to present themselves and take property under will or via state intestacy laws.

Determine which types of assets go through probate

Sole ownership, TIC, 1/2 Community property, Moveables (autos, home goods, etc.) Probate process also retitle property owned at the time of death, but not disposed of through the will, such as intestate property resulting from failure of the decedent to include a residuary clause in his will.

per capita

Sometimes called "By the head" allows the deceased person's heirs to move into generational slot of the deceased heir and inherit accordingly. At each Generation-Directs equal shares to each living member of the same generation.

Properties passing outside of probate?

State Contract laws -Life insurance, Annuities, IRAS, SEPS, SIMPLEs and Qualified Retirement Plans, POD and TOD Accounts. State Titling Law State Trusts Law

Which of the following is not a method to transfer property outside of probate?

State intestacy law.

The estate of a person who dies without a will is distributed according to:

State law.

Advantages of Probate: Transfer of clear title

The Probate process gives clear title to heirs or legatees. When the heirs or legatees receive property, they want to receive property free of creditor claims and other competing ownership interests. Thus, the probate process assists the estate in satisfying creditor claims and clarifying competing ownership interests.

Define the probate Process

The legal process through which the decedent's assets that are not automatically transferred to their heirs by contract or law are re-titled in the name of the heirs Can be defined as the legal proceeding that serves to prove the validity of an existing will, supervise the orderly distribution of a decedent's asset to the heirs, assure heirs that they receive clear title, and protect creditors by ensuring that valid debt of the estate are paid prior to distribution of assets to heirs.

Identify how the Probate process begins

The petitioner (executor) must provide the court with certain info, including certified copy of the death certificate, the last will, a list of names and addresses of the decedent's heirs, and a list of the known creditors. Assuming all paperwork is in order and there are no disputes among heirs, the hearing will be rather short. The court will accept the will, it will be filed in the public records, and the court will officially open the probate process.

Disadvantages of Probate Process: Time cost of Probate (Delays).

The probate process is a complex legal process that takes time to complete. In order to protect the individuals involved, legal notices must be posted, hearings must be scheduled, and asset valuations must be conducted. Delays are frequently caused by time needed to value assets, time needed for identification of creditors and heirs, court delays, and the filing of tax returns. Probate proceeding typically averaging from 6 to 24 months to complete. Probate also ties up the decedent's probate assets during administration of the estate.

Disadvantages of Probate Process: Privacy (Publicity)

The probate process is an open court proceeding and like any other open court proceeding, the documents filed and hearings held are open to the public. Since the files are public records, anyone can access the probate documents.

Executor

They locate will, submit will to court, prove will with witnesses and notary, and receive letters of testamentary

The purpose of a surety bond would be:

To protect the creditors, heirs, and legatees of the estate from financial loss in the event that the administrator or executor engages in a wrongful act. The company of the bond will reimburse the estate for the loss. An administrator will need formal discharge of the bond before closing the estate.

Advantages of probate: Protect the creditors

When a person dies they often have outstanding debts. The Creditors would like to be paid the money owed to them, and the probate process protects these creditors by ensuring that the debts of the estate are paid before distributions are made to heirs or legatees.

Problem Distribution: Abatement

When there not enough assets in the estate to satisfy all of the decedent's specific bequests. If the estate is too small to satisfy all bequests, the court will generally reduce amounts given to the legatees.

Describe the probate process? 3) Managing and distributing the estate

after "Marshalling the assets", personal representative compiles an inventory list of the decedent's property. The property is then valued by a valuation specialist or appraiser. Depending on the type of assets, the valuation may be relatively inexpensive or substantial in both cost and time. Must identify and list all debts owed by the decedent, must file necessary fed and state tax returns and pay any taxes due.---Must be compensated for work done for the Personal Rep. After all of the assets have been distributed, the court will officially close the probate proceedings.

Ancillary probate

concurrent probate process conducted in the non-domiciliary state. It often requires an attorney in that nondomicilary state and additional, separate court fees, thus further reducing overall value of the estate that passes to the heirs. The process by which property in the non-domiciliary state is re-titled. Another issue that can rise is when decedent dies interstate or without a will. The intestacy laws of domiciliary and non-domiciliary states may be different.

Probate issues: Ancillary probate

concurrent process conducted in nondomicile state. Example - condo in Winter Park, Colorado when decedent lives in Florida

Primary difference between an executor and administrator is that

decedent chooses the executor, and the probate court names the administrator

Domicile

the place where the person has made their home, is registered to vote vote, has a driver's license, filed a resident state income tax return, etc.