1. What is probate? Probate is a court proceedings where the final business matters of a person are concluded. It a process whereby the (a) final bills and taxes of a decedent are determined and paid and (b) the remaining assets are orderly distributed to the persons entitled to receive them. Probate is designed to protect the beneficiaries of your estate, your creditors and the financial institutions that the assets you leave behind will be distributed properly. In smaller estates the entire process can be handled in a single court hearing called Summary Assignment or in very small estates by collection with an affidavit. In most situations a personal representative is appointed by the court to handle your final affairs. The personal representative is responsible to wind up all business affairs and then distribute the balance to the persons entitled to receive the assets. Under Minnesota law, an estate can either go through a formal hearing to start the probate proceedings or it can be handled informally through the court administrative staff without a formal court hearing. After the commencement of the probate process, the court can either continue to be involved or if the family elects to handle it informally the court can be asked to become involved if problems arise that need to be handled by the court. Many factors are considered by an attorney to determine the type of proceedings to be used and the level of court involvement.
2. Isn’t probate an expensive court procedure? All court proceedings have court costs affixed to them and most probate proceedings will require the expertise of an attorney. However, the state of Minnesota in 1976 adopted a version of the Uniform Probate Code that has greatly simplified probate proceedings. Attorneys in the state of Minnesota are now required to charge fees commensurate with the work involved based on a number of factors. Attorney fees can no longer be charged strictly on the amount of assets involved. Most attorneys charge fees based on the amount of time spent and costs incurred. An attorney should outline in writing how they will be charging you for their services.
3. If I have a will do my assets still have to go through probate? The existence of a will does not control whether your estate will have to go through probate or not. The determining factor is the type of assets you own at the time of your death. Whether probate is necessary is determined by how you own your property. A will tells the probate court (a) who you want to handle the completion of your financial affairs and (b) who is to receive any assets that may be left over after payment of expenses and taxes. If you own property in your individual name, some type of probate proceedings will have to occur to transfer assets to those entitled to receive your estate.
4. If I leave a very small estate will my assets still have to go through probate? The answer will depend upon the type of assets. If a person leaves only personal property (i.e. anything other than real estate) and if the total value of all personal property owned by the decedent in his or her individual name is less than $20,000.00, the legislature has created a process for collection of the personal property by an affidavit thirty (30) days after death. The process requires the persons entitled to receive the assets to prepare an affidavit and submit it along with proof of death (i.e. certified copy of a death certificate) to the respective financial institution to collect the assets.Who is entitled to receive the assets often varies and can be those who have paid priority expenses (i.e. funeral expenses, expenses of last illness, etc.) and those who are named in the will or are entitled to receive the estate under the laws of intestacy. If the decedent owned real estate you cannot transfer title by an affidavit.
5. Does my will control the disposition of all of my assets? The answer is no. A will only controls and governs the disposition of those assets which you own in your individual name. Assets that are in your individual name are often called “probate assets” because to transfer ownership at death they generally must go through some form of probate proceedings. However, in certain circumstances a will can revoke the right of survivorship for certain joint, payable on death (“POD”) or transfer on death (“TOD”) financial assets.
6. What are non probate assets? Non probate assets are typically property (real estate or personal property) that are owned where a contractual arrangement has been created typically with a financial institution whereby the financial institution agrees on the death of the owner to automatically transfer title to a designated beneficiary or joint owner. One common example of non probate property is jointly owned real estate and personal property which by statute will automatically belong to the surviving joint tenant(s) at death in proportion to their ownership. Other examples of non probate assets are Payable on Death (“POD”) bank accounts, Transfer on Death (“TOD”) security registration, life insurance and annuity contracts wherein the owner of the policy designates a beneficiary to receive the policy if it has not been consumed prior to death; Individual Retirement Accounts (“IRAs”) and retirement plans where the owner designates a beneficiary, some employment benefits, certain union death benefits, POD Government Savings Bonds, life estates in real estate, etc. Also, any assets which a person owns in a trust with a designated beneficiary is also deemed to be a non probate assets.
7. What happens to a non probate assets if all designated beneficiaries or joint owners predecease? If all designated beneficiaries of non probate assets predecease the owner, the asset will become a part of the owner’s estate and be distributed to those persons entitled to receive the assets. If all joint owners die, the non probate asset becomes a probate asset of the estate of the last to die and it will be distributed with the other assets. Some financial institutions allow owners to designate contingent beneficiaries if the primary beneficiary dies before the owner of the asset.
8. Why not use non probate assets to pass my entire estate? Non probate assets generally have very strict rules about succession. Generally, you cannot provide for alternate beneficiaries if one predeceases you. It is typically a survivors game in that only those who survive you share in the asset. Thus, if everyone has the decency to die in the right order non probate assets can work just fine. However, I have seen some unusual distributions where children die before their parent and the parent was not able to alter the non probate arrangement prior to his or her death. Under Minnesota law, the creator of some types of non probate assets [i.e. multiple party bank accounts (joint & POD) and TOD security registrations] can revoke the survivorship feature under the terms of creator’s will by specific reference to the asset and in some other instances if there is clear and convincing evidence of an intent to revoke. However, the rules are complex and you must carefully follow the statutes to properly revoke the survivorship feature.
9. If I draft a will, can I designate who will handle my final business affairs? Yes, you can and this is one important reason many people choose to prepare a last will and testament. The person you name is called a personal representative and this is the same as an executor or administrator. The person you name will have a “fiduciary” duty to act in the best interests of all of the beneficiaries of your estate. The court will generally appoint the person you choose to serve unless they have a conflict of interest or they are deemed unsuitable to serve.
10. What does the term “fiduciary” mean? The term fiduciary applies to persons who are acting in a representative position of trust such as a personal representative, a trustee or as an attorney-in-fact. The person who has a fiduciary duty has a legal obligation to act in the best interests of all persons who have an interest in the estate or trust or in the case of a power of attorney in the best interests of the person who gave them the power. In an estate, this means that the personal representative must treat all creditors and beneficiaries fairly and cannot exercise or use his or her discretion to unfairly benefit one beneficiary to the detriment of other beneficiaries.
11. What is the difference between an executor and a personal representative? None. When the Uniform Probate Code (“UPC”) was adopted, the term personal representative was chosen to designate the person appointed by the court to handle your final business matters. This was meant to be a non gender term. Prior to the UPC, the term “executor” and “executrix” was the name given respectfully to the male or female person who was appointed under a will and likewise the term “administrator” or “administratix” was respectfully given to the male or female person who was appointed by the court to serve in an estate where the decedent did not leave a will.
12. What authority does my personal representative have during my lifetime once I have designated him or her in my will? A person has no authority or power over you or your assets until you are dead and the will has been admitted to probate by the court having jurisdiction over your estate. Your will merely nominates the individual and the power will come from the court by an order appointing him or her as your personal representative. The nominated personal representative has to petition the court for appointment prior to receiving his or her power.
13. Upon my death will my personal representative automatically have authority to act on behalf of my estate? The answer is no. A personal representative has no legal authority to act except after appointment by the court. However, any actions taken by the nominated personal representative that are in the best interests of you estate prior to his or her appointment will be automatically ratified upon appointment by the court unless the nominated individual did not act in a responsible manner or in the best interests of the estate.
14. Does the State of Minnesota receive all of my assets if I do not have a will? The answer is generally no. If you do not take the time to prepare a will, the legislature has seen fit to create a statutory will for each one of us. The statute is called the “laws of intestacy.” The laws of intestacy assumes that you want to take care of only your closest living relatives. Thus, the laws of intestacy essentially specify that your estate shall be distributed to your spouse and descendants if any or if none to your nearest relatives. If you have remarried there are special rules that apply when you have children by a prior relationship. The laws of intestacy assumes you want all of your assets to go to your blood relatives. If you want your assets to go to persons and/or organizations other than your relatives, you need to prepare a will. However, if you die leaving no living relatives who can be found, there is a slim chance the estate could go to the State of Minnesota but in the 1,000s of probates I have handled this has never ever happened. We have always found at least one distant relative whether it be a third cousin twice removed who would gladly accept your remaining assets.
15. If I have a power of attorney why do I need a will? A power of attorney is a document whereby a person appoints one or more persons to assist them with their financial affairs. The person granting the power is called the principal and the persons receiving the power are called the attorneys-in-fact. However, a power of attorney automatically terminates at death of the principal and the attorney-in-fact ceases to have any power to act on behalf of the principal.
16. What is a trust? A trust is often used as a will substitute. It is an estate planning tool and when used in the right situation it can work very well. A trust is a written agreement whereby the person creating the trust (i.e. “settlor”) designates a party (i.e.” trustee”) to receive assets and to manage them pursuant to written instructions for designated beneficiaries. A trust can continue beyond the death of the settlor of the trust. A trust has to be funded by transferring assets to the trustee. The trustee will hold the assets for the designated beneficiaries. During the settlor’s lifetime, the beneficiary is often the settlor and the settlor’s spouse. After the death of the settlor, the written agreement will usually instruct when and how the assets are to be distributed. Sometimes the assets are distributed outright to the designated beneficiaries and other times some or all of the assets will continue in trust until some date or specified event in the future. A trust usually costs more than a will because you essentially are pre probating your estate by transferring all of your assets to the trustee prior to your death. Since a trust often continues for a period of time you also have to be very careful with the wording to make sure that it addresses various contingencies that might occur during the administration of the trust. However, trusts are not for everyone.
17. Will a trust avoid all professional expenses at my death? The simple answer is no. Contrary to what some attorneys may advise you, my experience is that a trust does not eliminate all professional expenses at death but merely minimizes the professional expense and eliminates most court costs. You will still more than likely need the services of an attorney and an accountant. The reason being is that if you have multiple beneficiaries or tax issues, you still need to prepare many of the same documents you would prepare in an estate (i.e. inventory to establish date of death values, accountings showing what bills were paid and assets sold, you still need to prepare tax returns (i.e. state and federal income and possibly estate tax returns) and proposals for distribution of assets from the trustee to the beneficiaries). In larger estates, you can generally save significant dollars by eliminating the court costs especially if you hold assets in states other than Minnesota.
18. Will a trust avoid or eliminate all taxes at my death? You can get the same tax advantages with a will that you can with a trust. Depending upon your situation, a trust can help you minimize your estate taxes and in some situations eliminate estate taxes.
19. If I have a trust do I still need a will? The answer is yes. The reason is that very seldom is a person able to die with all of his or her assets in the trust. Oftentimes there are some assets held outside of a trust which may have to go through probate or to be collected by affidavit. The will oftentimes used by attorneys is called a “pourover” will because it provides that all assets are to be transferred (i.e. pourovered) to the trustees to be administered and distributed along with the other assets of the trust. If the assets are under $20,000.00 in Minnesota and are personal property, the trustees can usually collect the assets by affidavit and avoid the probate proceedings.
Please contact the law office of Stephen L. Nelson, Attorney and Counselor at Law, at (651) 646-5000 to confidentially discuss your probate or estate planning matter
Stephen L. Nelson
Attorney and Counselor at Law
665 North Snelling Avenue
St. Paul, MN 55104
Telephone: (651) 646-5000
Fax: (651) 642-2619
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