Probing probate issues in settling wills

Probate is talked about as if it were the fifth horseman of the apocalypse—Thomas Hart Hawley, The Artful Dodger’s Guide to Planning Your Estate

If you’re like most people, you probably don’t have much of an idea what probate is.  You’ve no doubt heard just enough to feel that it’s not a good thing.  “Probate” is simply the judicial process for the orderly distribution of an estate.  Black’s Law Dictionary says probate is “a court procedure by which a will is proved to be valid or invalid.”  The dictionary goes on to say that current usage has expanded the term to “generally include all matters and proceedings pertaining to administration of estates.”

Let’s begin probate education by naming what does not have to be probated:  (a) property held in joint tenancy or, in Maryland, property held as tenants by the entirety; (b) life insurance proceeds (unless you named your probate estate as the beneficiary); (c) assets such as retirement accounts (like IRAs) and government bonds that are payable upon death to a person you name; and (d) assets held in a living trust.  Although these items are not probated, they are reported to the Register of Wills through the Information Sheet as a part of the probate process, and they are included in the total value of your estate for estate tax purposes. The rest of your property is most likely subject to probate.

A probate proceeding is most often started by the person you named in your will as your personal representative.  If you never got around to making a will (oh, my—after all my nagging, you still didn’t make one?), just about anybody can start the proceeding, even one of your creditors.  However, most courts would give preference to your spouse and your relatives for personal representative.  If your will does not name a personal representative, or if you did not have a will, a judicial hearing will be held in order for the court to name a personal representative for the estate.  This is an advertised, open hearing.  It gives interested parties the opportunity to object to the proposed personal representative.

The person seeking to be your representative fills out probate forms provided by the Register of Wills office.  Each Maryland county has its own Register of Wills.  As a general rule, the clerks in the county Register of Wills offices are friendly, helpful, and knowledgeable.  When the probate forms are completed, a legal notice is published in a local newspaper.  This notice informs your creditors that they must file claims, if they have any, against the estate and informs the public of the date of the first hearing.  The notice also must be sent to all “interested persons,” generally the beneficiaries named in your will as well as to your next of kin who would inherit if there were no will.

If the statutory waiting time expires without a challenge, your last will and testament will be admitted to probate and letters of administration will be issued to the personal representative.   These letters are your representative’s written authority from the court to act for the estate.  Creditors have a limited time from the date these letters are issued to file a claim against the estate for money due .  If they do not file during that time period, they lose the right to collect the debt.  This cutoff of creditors’ claims is an important benefit of probate.

Your personal representative’s first task is to inventory the property of the estate and, if required by the Register of Wills, to have it appraised.  These values are used on your Federal Estate Tax return if one is required.  These values also establish the new tax basis of all estate assets.  As Hawley explains in an example, the vacation cottage you purchased for $50,000 (your original tax basis) will get a new basis of $500,000, its value at the date of your death.  Your beneficiaries, if they sell the cottage, will pay capital gains tax on only those sales proceeds over $500,000.

During probate, your representative receives all income, pays all expenses, invests surplus cash, and generally manages your estate.  He or she must also file your last personal income tax returns along with your estate’s income tax returns.  After the time for filing creditors’ claims has expired and after your estate tax return has been filed, your estate can be closed.

The personal representative files an itemized final accounting, in which all income and expenses, gains and losses of the estate must balance. The representative also requests approval of his or her fees and, if an attorney was used, the probate attorney’s fees.  These allowable fees vary from state to state.  In Maryland, the personal representative’s fees are set by statute. Family members are often likely to waive this fee.

Finally, your representative sets out how the estate will be distributed.  Once the final accounting is approved, your representative will distribute your estate and his or her duties will be finished.  In a simple estate, this frequently takes perhaps four to six months.

Hope you now know more about probate than you did when we started.

Thank you for reading.  Stay well.  See you next week