Chipman Mazzucco Emerson Estate Planning and Elder Law

Many estate planning clients come to us with the same question: “How can my estate avoid probate when I die?”  There is a common misconception among members of our community that probate is an arduous process that will deplete estate assets and should be avoided at all costs.  However, in many cases, the probate process is not much more time consuming or costly than avoiding probate and can provide certain benefits that are unavailable to estates that avoid probate.

When is Probate Necessary?

The first step in understanding the probate process, and when probate is necessary, is to understand the difference between probate property and non-probate property. Probate property is all property which is owned by a decedent, in his or her sole name, and without beneficiary designations.  Non-probate property is all other property owned by a decedent such as joint property, retirement accounts with designated beneficiaries and assets owned by a living trust established by a decedent prior to death.

The following are examples of commonly owned probate property and non-probate property:

     Probate Property:

• Checking account owned solely by the decedent
• Vacation home owned solely by decedent
• Life insurance owned by the decedent with no designated beneficiary
• Automobile owned solely by the decedent

     Non-Probate Property:

• Retirement account owned by the decedent payable to the decedent’s surviving spouse
• Savings account owned jointly by the decedent and the decedent’s surviving spouse
• Life insurance owned by the decedent, payable to the decedent’s surviving spouse as the designated beneficiary
• Home owned jointly by the decedent and the decedent’s surviving spouse with rights of survivorship (but if owned jointly as tenants-in-common, the decedent’s half of the home would be probate property)
• Assets owned by a living trust established by the decedent

When an individual passes away, it is clear who has the authority to access his or her non-probate property.  For example, a joint account owner has access to joint accounts; a designated beneficiary of life insurance has the authority to claim the death benefit; and the Trustee of a living trust has authority to access to the assets owned by the trust.  No one must be appointed by the Probate Court to have such authority.  If the decedent’s estate includes probate property, on the other hand, no one has the authority to access such property and probate becomes necessary.  

The Probate Process

In a nutshell, probate is the process of appointing an Executor (or Administrator, if the decedent did not leave a Will), identifying and collecting a decedent’s property, paying the debts, taxes and expenses of the decedent’s estate, and distributing the remaining property to the beneficiaries of the estate.  

If the decedent left a Will, the process begins by proving the legal validity of the Will and asking the Probate Court to appoint the Executor of the estate.  If the decedent did not leave a Will, the process begins by asking the Court to appoint an Administrator of the estate. Once appointed, pursuant to Connecticut law, the Executor or Administrator will have the duty to complete the following estate settlement steps:

• Identify the decedent’s property (probate property and non-probate property) and determine the date-of-death value of all such property;
• Take possession of and safeguard the probate property;
• Prepare and file an Inventory of all probate property (with date-of-death values) with the Probate Court;
• Prepare and file the decedent’s final income tax returns;
• Prepare and file the estate’s income tax returns and the estate tax returns;
• Identify and pay the claims of creditors, the expenses of estate administration, and taxes;
• Prepare and file a Return of Claims and List of Notified Creditors with the Probate Court;
• Prepare and file a Final Account (or, for some estates, a Statement in Lieu of Account) with the Probate Court; and
• Distribute the remaining property to the beneficiaries of the estate.

The Final Account is a list of all probate property (starting with the Inventory), all income earned on such property (interest, dividends, etc.), all sales, and all debts and expenses paid from the estate.  It also includes a list of assets remaining after all estate obligations have been satisfied and a schedule of proposed distributions of the remaining property to the beneficiaries of the estate.

If the decedent left a Will, the beneficiaries of the estate will be determined according to the terms of the Will.  If the decedent did not leave a Will (i.e. the decedent died “intestate”), the beneficiaries of the estate will be the decedent’s heirs-at-law in accordance with State statutes (for information about intestacy laws in Connecticut, see “I don’t need a Will”).

After the Final Account has been approved and distributions made, the Executor (or Administrator) files a Closing Account with the Probate Court and the probate process is complete.

It is worth noting that, although the steps applicable in each state are analogous, the details (due dates, forms, filing and probate court fees, etc.) can vary significantly from state to state.

Probate Avoidance

Probate can be avoided with various estate planning techniques (a subject for another article).  For some estates, there may be compelling reasons to avoid probate.  You should consult an estate planning attorney to determine whether any such reasons apply to you.  In many cases, however, avoiding probate merely means avoiding the obligation to file certain documents with the Probate Court (such as the Inventory and Final Account) and payment of related filing fees. 

For example, some people avoid probate by establishing living trusts (revocable trusts) and transferring all of their assets to their trust. If a decedent transferred all of his assets to a living trust prior to his death and his estate included no probate assets, probate would not be necessary (barring complicating factors).  Nevertheless, the Trustee of the trust would have an obligation to: (i) identify and take possession of the trust assets (if the Trustee has not already done so), (ii) file income tax and estate tax returns, (iii) identify and pay the debts, taxes and expenses of the decedent’s estate, (iv) prepare an account to present to the beneficiaries of the trust, (v) and distribute trust assets in accordance with the terms of the trust.  In this example, even though the estate avoided probate, the Trustee still has most of the same obligations as the Executor’s obligations outlined above.

Keep in mind that avoiding probate does not mean the estate avoids estate taxes. Estate taxes are based on the value of a decedent’s gross estate which includes probate and non-probate property. Connecticut, in particular, requires all estates to prepare and file a Connecticut estate tax return even if the value of the estate is less than the Connecticut estate tax exemption and no Connecticut estate tax would be due.

In addition, avoiding probate does not mean an estate avoids the Probate Court fee. The Probate Court charges a statutory fee, based on the value of a decedent’s gross estate, which is assessed when the estate tax return is filed.  

Benefits of Probate

The probate process can provide certain benefits and protections that are unavailable to an estate that avoids probate. As discussed above, in Connecticut the Executor or Administrator has a duty to file an Inventory and Final Account with the Probate Court.  The Account should document every penny in and every penny out of the estate.  Probate Court supervision provides extra protection to estate beneficiaries in the event an Executor or Administrator attempts to abuse its power.

Probate Court supervision can also benefit the Executors and Administrators.  Troublesome beneficiaries will have a more difficult time contesting the actions of an Executor or Administrator if the Probate Court has given its “stamp of approval” on the Final Account of the estate.

In addition, probate court procedure limits the time during which creditors of an estate may make a claim for payment by the Executor or Administrator.  When the Executor or Administrator is appointed, the Probate Court publishes notice to creditors notifying them to present their claims to the Executor or Administrator. Creditors have 150 days to present a claim. After that period, if distributions have been made, the Executor or Administrator is free from liability from future creditors.  Without probate, the decedent’s estate is subject to the applicable statute of limitations which range from 2 to 6 years (subject to tolling statutes) depending on the nature of the claim.

[This article is meant to provide a basic overview of the probate process in the context of estate settlement, including some of the potential benefits of probate.  It is not intended to be a complete analysis of the probate process or the pros and cons of probate and probate avoidance.  For questions and detailed legal advice, please contact your attorney.]

Posted on 7/6/2012 by Kasey S. Galner, Associate, Chipman, Mazzucco, Land & Pennarola, LLC.

We frequently post articles relating to estate planning, estate settlement and elder law issues to this blog. We also post notices about our client seminars here. When we do, we send out notices to clients and friends of the firm. If you would like to get our notices, please join our mailing list by clicking below.

	Join Email List

Notice: To comply with U.S. Treasury Department rules and regulations, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction, tax strategy or other activity.

This entry was posted on July 6, 2012 at 4:23 pm and is filed under Estate Settlement. You can subscribe via RSS 2.0 feed to this post's comments.

Tags: estate settlement, fiduciary accounting, Probate Litigation, probate property, revocable trusts, wills