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What is Probate?

Probate is a court proceeding by which a person's final debts are settled and legal title to property is formally passed from the decedent to his or her beneficiaries and heirs.

How the Probate Begins

Usually, the probate proceeding is initiated in the county of the decedent's legal residence at the time of their death.

A)                  If there is a Will.  The original copy of decedent’s will is submitted to court along with a petition or application to probate the will and appoint a personal representative.  The will typically nominates a personal representative.

B)                  If there is no Will.  If there is no will, a person with priority of appointment must submit a petition or application requesting to be appointed as personal representative of the decedent. Most often, this is the personal representative is the surviving spouse or an adult child.  If there is a dispute over who should serve as personal representative, the court may appoint a neutral personal representative who can be counted on to be fair. This person is paid an hourly fee from estate funds.

A personal representative's authority only extends to the "probate estate" - defined as property subject to the jurisdiction of the probate court. Assets disposed of outside the probate process are part of the "non-probate estate," and the personal representative has no control of these. An example would be a life insurance policy that has a beneficiary designation.  If a decedent has probate property in another state, then that property must be subjected to ancillary probate in the other state.

The personal representative will file a Petition or Application for Probate and Appointment of Personal Representative. The petition or application will be filed at the county court administrator’s office along with a certified copy of the death certificate and the original will, if there is one.

We will then publish and cause the notice of probate to be served in accordance with Minnesota law.  Once submitted to probate, a will is a public record, and so are the subsequent filings with the court. These papers are open to inspection by anyone.

Depending upon whether we have initiated a formal or informal probate proceeding, a hearing date may be set for the personal representative to appear be formally appointed by a judge  At the hearing the court will review the will to determine its genuineness and validity as well as appoint a personal representative. The court issues an order appointing the personal representative. 

Once appointed, the personal representative has full authority to administer the decedent's probate property and accounts. The court will issue letters of administration to the personal representative to reflect the personal representative’s authority.

Basic Steps of Probate

After we have received the documents from court appointing the personal representative appointed and commencing the probate, there are four basic steps of probate that we will assist you with.  The difficulty of these steps vary greatly based upon the nature of the decedent’s property and the reasonableness of the people involved, but it usually takes between six to twelve months to complete.

Step 1.  The first step is collection, inventory and appraisal of all assets that are subject to probate are taken. The values taken at the appraisal are based on the value at the date of death. One of the first duties that we will assist the personal representative with is to take an inventory of estate assets. These assets include real estate, personal property, investment and bank accounts, vehicles as well as funds that are owed to the decedent or the estate, e.g. loans, final paycheck, life insurance, or retirement account made payable to the estate. We will assist you in preparing this inventory so that it can be filed with the court within thirty days of being appointed as personal representative.

An estate checking account is created for the decedent's household final bills and estate expenses (e.g., attorney, appraiser). It is necessary to have the account set up so that check images are returned to the personal representative. This checking account is also useful for combining all the decedent's financial accounts into a single pot.

Step 2.  Paying the bills - taxes, estate expenses, and creditors of the decedent is the next step.  The personal representative is not personally responsible for paying these expenses out-of-pocket if estate funds are not available provided the personal representative administers the estate in accordance with Minnesota law.  The order of payment of claims against the estate is as follows:

a)         secured creditors;
b)         costs/expenses of administration; 
c)         funeral expenses;
d)         debts and taxes; 
e)         all other claims and creditors.

We will assist the personal representative in reviewing the decedent's final bills, debts and claims,  to determine which bills are valid and then pay those and reject the rest.

We will assist you with the legal requirements pertaining to the allowance and disallowance of the claims.  A creditor has four months from the time the notice of probate is published to submit a claim against the estate.

Step 3.  Formal transfer of estate property according to the will or by Minnesota laws on interstate succession (if there is no will). 

When all rightful claims, debts and expenses have been paid, the remainder of the property is distributed by the executor as the will directs. At this point, if there is no will, the personal representative distributes property according to Minnesota interstate law. We will assist the personal representative to determine whether the personal representative should distribute the estate in cash or in kind (i.e., give away the property itself to the beneficiaries instead of liquidating the assets for cash). 

Most wills allow the personal representative to sell or transfer real estate after a legally specified waiting period. The personal representative usually may sell or transfer the testator's (decedent's) personal property any time but may not begin final distribution of property or sale proceeds until after all expenses have been paid or pursuant to an order of court.

When the waiting periods have expired and all legitimate bills, debts, and taxes have been paid, what remains of the estate is available for distribution to heirs or beneficiaries. Only then will we assist the personal representative to make disbursements of cash, send copies of documents such as deeds and investment statements showing new ownership and transfer physical property to the respective beneficiaries.

Step 4.  The final step is to prepare and file the final probate documents closing the estate, including an accounting of all income, payments and distributions made collected or made by the personal representative.  Depending upon whether an informal or formal probate had been commenced, once the judge approves the final settlement, the personal representative usually has no further duties and the estate is considered closed if it is a formal estate or administratively closed after one year of filing all closing documents if it was an informal probate.

The Duties of a Personal Representative

In most cases, the personal representative has discretion in how to handle the estate assets and the affairs of the estate.  If there is a will, the intentions of the testator as expressed in the will should always be considered as well as the desires of the estate beneficiaries - when practical. For the sake of family harmony, a personal representative should be fair in the administration of the estate.

The personal representative should not act until the estate is probated as the personal representative does not have such authority until they are actually appointed by court.  The personal representative should, however, maintain real estate or continue to operate a business.

If the personal representative is also a beneficiary under the will or an heir according to law if there is no will (e.g., an adult child), he or she is absolutely forbidden to "self-deal" or give anyone preferential treatment.  Note that - absent his or her own negligence or wrongdoing - the individual serving as personal representative is not personally responsible for satisfying claims or lawsuits against the decedent or the estate itself.  

The personal representative is responsible for prudently investing estate assets. The law imposes a fiduciary duty on personal representatives to act cautiously and always to have the best interests of the beneficiaries in mind. If this duty is violated and a loss or waste of assets results, the personal representative might be ordered to pay compensation personally (or as an institution) to the beneficiaries in this situation, as well.

However, the personal representative is not held responsible for a poor return on estate investments as long as any investments chosen by him or her are appropriate. For example, if a general market downturn decreases the value of the estate portfolio of "blue chip" stocks and bonds, the law would not hold the personal representative responsible. By contrast, if the personal representative lost money risky speculative investments or failed to get a reasonable return by leaving substantial assets in a checking account, these would probably be considered inappropriate, and he or she might be individually liable.

The personal representative's fiduciary duty also requires him or her to protect and preserve estate assets. For example, if estate funds were available but the personal representative neglected to pay an insurance bill and a fire loss to the decedent's home resulted, he might well be held liable to the beneficiaries. 

A personal representative is entitled to reasonable compensation. The fee taken is must be listed on the final account and is, therefore, it is ultimately subject to approval by the court.  Our fees, accountant’s fees as well as any other professional fees will typically be paid or reimbursed out of the assets of the estate.

What Property is Subject to Probate?

A common misconception is that probate applies to all assets of the estate. Actually, probate handles only those assets within the probate estate. The estate is made up of all the property that's distributed through probate; the remaining property is referred to as non probate property.

In a general sense, probate assets are those owned by the decedent own alone, without any beneficiary designations, while non probate assets are owned jointly with others or have a beneficiary designation on them.  Non probate assets passed automatically upon the decedent’s death.

To start your Estate Protection Plan and to get any other questions you may have answered, contact our office at (763) 389-0178 to schedule a meeting or send us an email by clicking here.

 

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How do I transfer property to my beneficiaries?

Generally, there are three methods in which you are able to distribute your property to your beneficiaries through your will or trust: (1) by identifying specific pieces of property that is to be left to your beneficiaries or by what is referred to as a “Specific Devise”; (2) by identifying a specific amount of money that is to be left to your beneficiaries or what is referred as a “General Devise”; or (3) by creating fractional divisions to be distributed outright to your beneficiaries or by what is referred to as a “Residue Devise”.

Specifically, a Specific Devise is a specific gift of a piece of property in your will or trust to a specific person. A specific devise could include real estate, vehicles, boats, ATVs, a business, stock, a specific investment, etc. An example of a specific devise is if Bill states in his will or trust that he is leaving his cabin in Aitkin County to his brother Alex.

A Specific Devise can allow include a Tangible Property List. A Tangible Personal Property List is document that is separate from your will or trust that provides you an opportunity to transfer personal property to your beneficiaries apart from your will or trust. You can prepare a separate Tangible Personal Property list provided your will includes specific provisions allowing for such a list.

Tangible personal property is an object that you can pick up and hold in your hand. It includes such things as furniture, dishes, silverware, jewelry, guns, fishing gear, works of art, etc. When you make a list, you need to describe the items and the people who are to receive them. Your personal property must be described with a reasonable amount of certainty so your personal representative and trustee understand what personal property you are referring to. The list must either be in your handwriting or signed by you. The list can be changed by you any time after it has been prepared without needing to come back to our office, so long as any changes to the list are in your handwriting or signed by you. You can change gifts, make new ones or delete old ones. You are not able to dispose of money, assets that have a title, stocks, bonds, or other securities, or property which you would use in a trade or business.

A General Devise is a specific monetary gift to a specific person or charity to be funded out of your overall estate. An example of a general devise is if Bill’s will or trust stated that he was leaving his daughter Emma a monetary gift of $30,000.00. An additional example is if Bill’s will or trust stated that he was leaving his church a monetary gift of $20,000.00. Please understand that it is not necessary to make any general devise gifts in your will or trust unless you want to ensure that a specific beneficiary receives a specific monetary gift.

A Residual Devisee is a beneficiary who receives their share after the Specific Devisees’ and General Devisees’ gifts have been distributed. An example of a residual devise is if Bill’s will or trust stated “the residue and remainder of my estate shall be distributed in equal shares to my son Sam and my daughter Kate.” It is necessary to name residue devisees in your will or trust because the residual devisees will receive the remaining proceeds of your estate that are not distributed to a specific devisee or general devisee. These typically are the beneficiaries that you desire to receive the bulk of your estate.

To start your Estate Protection Plan and to get any other questions you may have answered, contact our office at (763) 389-0178 to schedule a meeting or send us an email by clicking here.

 

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If I have a will, can't I avoid probate?

It is a common misconception that a will can avoid probate. However, a will alone will not avoid the need for probate. On the contrary, probate is often necessary to administer a will and distribute your assets to your beneficiaries.

What is probate?

Probate is a court process designed to transfer property that has no specific beneficiary designation to the rightful beneficiaries or heirs. During this process any taxes due on the transfer of the property are collected and payment of any outstanding debts is completed. The probate process typically takes between seven to twelve months to complete and usually costs in excess of $3,000 to complete. The balance of your estate and property remaining following the settlement of your debts and taxes is then distributed to your beneficiaries.

The probate process usually does not benefit your beneficiaries. Instead, it will result in a reduction of the assets available to your children or beneficiaries as well as a delay in the availability of your assets for your children.

How can I avoid probate?

You can avoid the necessity of probate by establishing a living trust or using beneficiary designations. The probate avoidance plan that is proper for you depends in part upon the ages of your children and beneficiaries, as well as your children’s and beneficiaries’ ability to manage their own finances.

To start your Estate Protection Plan and to get any other questions you may have answered, contact our office at (763) 389-0178 to schedule a meeting or send us an email by clicking here.

 

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Who should administer my estate?

What are the responsibilities of a personal representative?

Generally speaking, a personal representative is responsible for settling and distributing the estate of a deceased person in accordance with that person’s will. The specific responsibilities of the personal representative include:

1. Arranging for the immediate needs of your children;
2. Selecting an attorney to assist in the administration of your estate;
3. Assisting in preparation of the documents necessary to probate and administer your estate;
4. Acquiring the property contained within the estate;
5. Receiving payments due to the estate;
6. Pay any expenses that may be outstanding at the time of your death;
7. Valuing the assets of your estate;
8. Investigating the validity of all claims against the estate;
9. Distributing the assets of your estate; and
10. Investing the assets of the estate.

Who should be your personal representative?

A personal representative must be at least 18 years old. A family member, friend, corporate entity or bank can be appointed and serve as your personal representative. You are able to appoint more than one person to serve as co-personal representatives.

You should carefully consider the potential effect of your possible choices based upon the objectives provided in your will. The person you select as personal representative must be able to follow your wishes, treat your beneficiaries fairly, be organized and be good with money and investments.

No matter who you choose to serve as personal representative, you should talk to the person or persons to confirm that they are willing to perform the duties of personal representative.

To start your Estate Protection Plan and to get any other questions you may have answered, contact our office at (763) 389-0178 to schedule a meeting or send us an email by clicking here.

 

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What is a trust and why do I need one?

A Trust is a written agreement that sets up specific rules about how property and assets that have been transferred into the Trust are to be administered and distributed. There are basically two types of Trusts that are relevant to families with minor children: (1) a living trust; and (2) a testamentary trust.

A living trust is created and funded while you are alive. When created, a living trust can be revocable or irrevocable. However, in most cases, in order to allow you to properly manage your property and assets held by the Trust we suggest that the living trust you create be revocable. This allows you to change the trust, add to the trust, take assets from the trust or terminate the trust anytime you want. An irrevocable trust does not allow you this flexibility.

Why Establish a Living Trust?

1. Avoid Probate. Because your living trust is a private contract between you (as the person creating the trust) and the trustee (the person administering the trust) any assets titled in the name of your trust at the time of your death will avoid probate.

2. Accelerate Distributions to your Beneficiaries. Because your living trust is not required to proceed through the tedious court process of probate, your assets and property are able to be disbursed to your beneficiaries almost immediately if necessary.

3. Keep your Estate Plan Private. Unless your beneficiaries and successor trustee get into a dispute requiring judicial intervention, your living trust will not be filed with court because the assets and property titled in your living trust pass without the need to be probated. In contrast, if you just have a will, your will must be filed with court and probated in order to pass your property and assets to your beneficiaries.

4. Cost Savings to your Beneficiaries. Typically the cost to administer your living trust is significantly less than the cost to administer your will through the court probate process.

5. Planning for Disability or Incapacity. If you should become incapacitated or incompetent, a living trust will avoid the need for the establishment of a conservatorship. A conservatorship is a court proceeding brought for purposes of managing your financial affairs if you are unable to do so. Through your living trust you can specify how your mental incapacity should be determined, like by a letter from your treating physician.

Conversely, a testamentary trust is established through your will or trust with provisions to be carried out after your death. In most cases, unless you establish a testamentary trust to manage the shares of any beneficiary who is a minor, the courts will require that a conservatorship be established to administer your minor beneficiaries’ share of your estate. Not only is this an additional cost that is assessed against your minor beneficiaries’ share of their estate, but your minor beneficiaries will automatically receive their share of your estate when they turn 18. You need to carefully assess your beneficiaries’ financial maturity, whether or not they are minors, to determine their ability to manage their financial affairs. In most cases, including a testamentary trust in your will or living trust it is necessary to be sure your values, as it pertains to the disbursement of your estate to your beneficiaries, are achieved.

Through the establishment of a testamentary trust, you are able to make discretionary or non-discretionary disbursements. Discretionary disbursements include those disbursements over which you want your trustee to have discretion to make. For example, you may want to allow your trustee to make disbursements to your beneficiaries for such things as educational expenses, purchasing a house or starting a new business. A testamentary trust can be customized to allow for such discretionary disbursements by your trustee including limiting how the disbursements can be used as well as the amount that can be disbursed.

Non-discretionary disbursements include those disbursements which are able to compel through the provisions of your trust. An example of a non-discretionary distribution provision includes a mandatory distribution to your beneficiaries when they attain a specific age or withholding distributions to your beneficiaries if they are engaged in some activity for which you are opposed.

To start your Estate Protection Plan and to get any other questions you may have answered, contact our office at (763) 389-0178 to schedule a meeting or send us an email by clicking here.

 

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Who should I name as my Trustee?

Typically you act as the initial trustee of your trust with your spouse as a successor trustee. Your trustee is responsible for administering, investing and ultimately distributing your assets in accordance with the provisions of your Trust. The specific responsibilities of your trustee include:

1. Making both discretionary and non-discretionary disbursements to your children and beneficiaries;
2. Hiring investment advisors, accountants and attorneys to assist in the administration and distribution of the trust;
3. Assisting in preparation of the documents necessary administer your trust and dissipate the trust assets;
4. Receiving payments due to the trust;
5. Pay any expenses that may be outstanding at the time of your death;
6. Investigate the validity of all claims against the trust;
7. Distributing the assets of your trust in accordance with the trust terms; and
8. Investing the assets of the trust.

Who should be your trustee?

A trustee must be at least 18 years old. A family member, friend, corporate entity or bank can be appointed and serve as your trustee. You are able to appoint more than one person to serve as co-trustees.

You should carefully consider the potential effect of your possible choices based upon the objectives provided in your trust. The person you select as trustee must be able to follow your wishes, treat your beneficiaries fairly, be organized and be good with money and investments. Your trustees may have to be available to serve as trustee for a number of years as it may be many years until your trust is fully disbursed and their job is terminated. In addition, at least as far as it pertains to a living trust, if you should become incapacitated or unable to manage your own financial affairs, the trustees you appoint may be making disbursements to you while you are still living.

No matter who you choose to serve as trustee, you should talk to the person or persons to confirm that they are willing to perform the duties of trustee.

To start your Estate Protection Plan and to get any other questions you may have answered, contact our office at (763) 389-0178 to schedule a meeting or send us an email by clicking here.