Wednesday, April 15, 2015

Introduction to Probating an Estate

As we discussed last week, the death of a loved one can be very trying. In addition to the emotional weight of the loss, survivors must also contend with the burdens of administering the decedent’s estate. 

     The first step in administering the estate is determining whether there are any assets that must pass through the Probate process. Under Michigan Law, any assets owned by the decedent alone, as well as IRAs and life insurance policies without valid beneficiary designations, must go through the probate process before passing to their new owners. The probate process can be lengthy and is very public. The probate is opened in the county in which the decedent resided at the time of death and a personal representative is named to administer the estate. Unless the decedent executed a Will naming a person to act as personal representative, the Probate Court will appoint someone to that role. Upon appointment, the personal representative receives "letters of authority" which gives them the power to act on behalf of the estate. 
     The personal representative is charged with gathering all of the assets of the estate and protecting them, which includes covering assets with insurance where appropriate, maintaining assets such as real estate, and protecting any other valuables. The personal representative must value the assets in order to file an inventory and regular accountings with the probate court, showing what is being done.
     The personal representative also has a duty to notify all actual creditors and potential creditors of the estate. Once notice is given, the creditors have four months to file a claim against the estate. The personal representative must then determine which claims are valid and then pay those claims, as well as any expenses or obligations of the administration of the estate. 
     The personal representative must also determine the beneficiaries of the estate, either by looking at the terms of the Will or, if there is no will, the state intestacy statute. The beneficiaries must be given information regarding the assets of the estate and their entitlement.
     The Michigan the Estates and Protected Individuals Code ("EPIC") provides for three allowances for either a surviving spouse or surviving children. These allowances take priority over other claims against the estate, except for administration costs and expenses and reasonable funeral and burial expenses:
  • Homestead Allowance: The surviving spouse or surviving children are entitled to a Homestead allowance of $15,000, adjusted for inflation. This allowance ensures that surviving family has sufficient funds to pay housing and utility costs. This allowance has priority over all successive allowances.
  • Family Allowance: During the period of probate administration, the surviving spouse and any minor children whom the decedent supported are also eligible for a reasonable family allowance to cover the cost of normal living expenses. While this allowance lacks a definitive value, the allowance is limited to a single year when it is clear that an estate is inadequate to discharge all other allowable claims.
  • Exempt Property: The surviving spouse is also entitled to household furniture, automobiles, furnishings, appliances, and personal effects from the estate up to a value not to exceed $10,000.
     After completing all of these steps the personal representative can then begin to distribute the remainder of the estate to the heirs. On Thursday we will discuss the factors that impact the portion of an estate each heir receives. 

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