How Estate Planning Works to Protect Your Loved Ones

Recently, while discussing an update to estate plan documents with an existing client, the client stopped me and asked, "What happens when I pass away?” I started to tell him that the documents will minimize or eliminate estate tax, avoid probate, and protect his family. The client stopped me short and said, "I understand all that, but what really happens?". It was then I realized that, my answer to him had been completely precise and yet useless. As professionals, we often focus on the big picture of estate planning, giving little or no explanation as to how clients, or their loved ones, use the estate planning documents we create. Over the course of the next few posts we will discuss what should actually occur when a person dies.

When a client passes away and their family or other loved ones notify us, we often suggest sitting down with the Personal Representative, Trustee, and any other parties who want to attend, after the funeral has occurred. Generally the personal representative and trustee do not need to take any immediate action and our preference is to let the family complete its grieving period before meeting with them.

At that meeting one of the first issues we discuss is whether the decedent owned any assets in their name alone that will require a probate. If there is an asset that is only in the name of the decedent, the probate process facilitates the legal transfer of that asset to the decedent's beneficiaries. The probate process involves a number of steps, depending upon whether or not the probate is a "small probate" or a "full probate.” If the value of assets needing to pass through probate is less than $20,000, a small probate is sufficient to complete the transfer. In a small probate, the personal representative completes one form, and the process of filing the estate, obtaining an order for the distribution to the estate beneficiaries, and closing the estate takes only one day.

A full probate, where the estate contains assets having a value greater than $20,000, requires a number of steps:

1. The Personal Representative opens a probate file with the Probate Court. This includes a petition to the Court requesting that the personal representative be appointed to administer the Estate
2. Notice of the probate must be given to heirs at law as defined by the statute
3. An inventory of assets must be filed with the Court
4. The Personal Representative must notify known creditors and potential creditors are notified by placing a notice in the local legal news that the decedent has died and the creditors have only 90 days to file a claim against the estate.
5. After settling any debts with creditors, the personal representative distributes the estate to the beneficiaries designated in the Will or in the absence of a Will to the heirs at law
6. The Personal Representative gives a final accounting to the heirs at law and the court
7. A request is made to the court to close the estate when there are no longer any assets owned by the estate.

     The probate process can take from six months to a year or longer depending upon the complexity of the estate and the assets within it. As often discussed, this is one of the primary reasons for implementing a Living Trust and funding assets into the Trust prior to one's death. Next week we will discuss what actions should occur with respect to the Living Trust.

Alan Ferrara