“I’m An Only Child. Do I Really Need A Probate Attorney?”

When Ed’s father died, Ed didn’t think that probate would be an issue for him. After all, Ed was an only child — what did he have to worry about in the way of other brothers or sisters to contest a will? Unfortunately, what Ed would come to realize was that there were a lot more issues that had to be dealt with to settle bills, transfer accounts, sell his father’s house, and more.

It’s easy to assume that being an only child is a formula for avoiding probate court, but the reality is that a number of questions must still be answered.

What are the assets?
In addition to the personal possessions, there may be financial accounts, investments, real estate, and other things to think about. Banks will require proper documentation to transfer accounts. And when real estate is among the assets, there’s a good chance that probate may be required. These considerations can necessitate a probate proceeding, even if only one child survives.

What are the liabilities?
Bills, claims, and other obligations also can present an issue. What needs to be paid, and when? What happens with benefits received after the recipient’s death? What happens if there is ongoing litigation or potential claims? These are topics for which guidance may be needed.

What else needs to be done?
Even if the assets and liabilities of the decedent are such that a probate proceeding is not required, there may still be final tax filings due. And there may be other things which the surviving heir may want assistance with, such as if there are business interests, assets that will decline in value if left unattended, or other specialized circumstances.

Whether a probate proceeding is necessary depends on the assets, liabilities, and other circumstances of the decedent. In some cases, probate may be avoidable, but some questions need to be sufficiently answered in order to make that determination. But the fact that only one child survives often is not the deciding factor.

The easiest thing to do is to have a strategy session, which can help identify whether or not a probate proceeding will be required. Call us today at 312-278-1187 to schedule one.

Myth: “If I have a will, I don’t have to worry about probate.”

Sonia smiled to herself. She had just signed a will, and now felt that her children would never have to bear the expense and time of probate court. The house and accounts could all transfer without any hassle. So she thought.

After Sonia had passed away, her family found there was much more to do. Probate was required after all, to deal with Sonia’s house, investments, and other obligations. The process stretched on for months.

Although people sometimes believe that the act of making a will is sufficient to avoid probate, in many instances the will only serves as a map for the probate process. Probate court is not limited to those who die without a will.

A will has some fairly traditional parts. For example, it often describes the immediate family and names someone to serve as the Executor. It may identify certain property to be given to a particular individual. It may specify how taxes and expenses of the estate are to be paid. And it may have other provisions designed to streamline the time, cost, and expense of a probate proceeding.

But it does not avoid probate.

Probate is the process by which any claims and debts are paid, and the remaining assets are distributed. It usually is required for estates with assets over $100,000, and for estates in which the decedent owned land in his own name, unless another arrangement eliminates the need for probate.

One way to dependably avoid probate is by creating a trust. Other estate planning techniques can also provide ways to keep certain kinds of assets out of probate. And real estate, financial accounts, or other personal property titled in joint tenancy would not be required to go through a probate proceeding as long as one of the joint tenants is alive.

By putting the right pieces together, a comprehensive estate plan can provide the continuity Sonia was aiming for. Which ones apply in your family?

Do I need a probate attorney?

When someone close to you passes away, there may be some steps needed to handle the decedent’s estate and wrap up his affairs properly. Here are eight common signs that you need a probate attorney. If any sound like your situation, then proceed directly to the bottom of this list for the next step to get you the clarity you need right now.

#1: A Bank Requests Letters of Office

If the deceased had a bank account or a safety deposit box, the bank likely will require that the executor of the will provide Letters of Office. A Letters of Office are issued by the probate court, and indicate that a certain individual is authorized to deal with the affairs of the deceased person. The bank will then see that the person named in the Letters of Office is, in fact, the person they are supposed to be talking to regarding the accounts or safety deposit box in the name of the person who has died.

#2: The Deceased has Bank or Brokerage Accounts

If the decedent has bank or brokerage accounts, an executor can expect the financial institutions will request proper documentation. In the state of Illinois, if a deceased individual had over $100,000 in total assets in his name, probate is going to be required. If he had less than $100,000 in total assets titled to him, then it may be possible to use a small state affidavit to avoid probate. Whether probate is ultimately required or not, having a conversation with a probate attorney about the total amount of the decedent’s holdings and what steps to take can be immensely valuable. A probate attorney can help the executor assess next steps and prepare any essential documentation.

#3: The Deceased has Over $100,000 in Assets

While bank and brokerage accounts are one way to reach the $100,000 threshold, other personal property also can trigger the need for probate. Did the decedent own, for example, pieces of art, cars, boats, planes, rare stamp and coin collections, sports memorabilia, or other collections? These assets can have substantial value, and either alone or in combination with financial holdings, can result in a probate proceeding.

#4: The Deceased Owns Real Estate

In most cases, real estate owned by the decedent individually must go through probate to allow the adjudication and transfer of title to the decedent’s heirs or legatees.

There are some exceptions to probate, such as if the decedent had prepared and recorded a Transfer on Death Instrument, or TODI. A TODI allows real estate owned by an individual to pass without need for probate. Also, real estate held in a trust or land trust would be administered according to the terms of the trust agreement, rather than through probate. Finally, if the decedent owned the property together with another person in joint tenancy, then the surviving joint tenant would become the owner of the property. Of course, this sparks the question of what steps that person should take from an estate planning perspective in order to avoid putting his or her heirs into the position where a probate is required.

A probate attorney can provide guidance as to how the real estate is titled, and what steps, if any, need to be taken.

#5: The Deceased has Unmet Obligations or Liabilities

Bills. Expenses. Loans. If these liabilities are out there, there could be claims by creditors who want to get paid. Are these claims valid and properly made? Are they timely or not? A probate attorney can assist with these types of questions.

#6: The Deceased has Children Under Age 18

Children under the age of 18 need a guardian, if neither parent has survived. Therefore, a guardian would need to be appointed and properly designated. Hopefully, during his life the decedent nominated someone well-suited to serve in that capacity. If not, there would be an additional process to identify and appoint somebody able to serve as guardian, as minor children may not be left to fend for themselves.

#7: The Deceased has Business Interests

When the decedent owned a closely-held business, either individually or with others, a few vital questions need to be addressed, such as:

  • Will the business continue?
  • Would business assets go to waste if allowed to sit or not acted upon immediately?
  • How will the business or business interest be sold or transferred? Are agreements in pace for any transfer, valuation, or sale?

Any business interests should be discussed with a probate attorney to best preserve their value.

#8: The Deceased has Pending Claims or Litigation

If the decedent has an ongoing court case, or has claims that could be litigated, they become matters for the estate to pursue. These can vary from business and commercial claims to personal injury cases resulting from accidents or improper care. In any event, the estate would need somebody to make decisions on the course of litigation and on those claims. A probate attorney can help you analyze the best course of action on such claims, as well as the time in which to do so.

Do any of these signs appear to apply?

If so, contact us at Windy City Legal for a consultation specific to your particular situation. Even if you think you are entirely outside of probate, a strategy session can help ensure you’re taking the necessary steps for the estate.

To schedule that session with us today, call Windy City Legal at 312-278-1187 or click here to reserve one online.

How indecisiveness can destroy an estate plan

“Joe” had filled in a form will and provided that, after he passed away, his executor would be someone appointed by his sister “Jane,” and his property would be distributed in a manner also to be decided by Jane.

Although Joe had properly executed the will, his intent was not declared in a definite manner. Instead of making several important decisions, his delegation of them left patent ambiguities in the will. If the will is admitted to probate at all, the ambiguity is likely to cause any gifts of property to lapse.

The result will be intestacy (if the will is not admitted to probate) or the default distribution scheme contained in the Probate Act for intestate estates (if the will is admitted, but all of the gifts lapse).

Being selective in choosing executors and beneficiaries, and taking steps to prepare them for those roles, can result in a more smooth transition. And being definite in describing the components of the estate and the people who will be involved with the estate can avoid the ambiguities and disputes that lead to delays, costs, litigation, and hurt feelings that can last for years.

Both to avoid a lapse in the will and also to take steps to preserve one’s legacy, then, it is important to undertake estate planning in a thoughtful and definitive manner.

 

What is a step up in basis?

Sometimes people want to sell part or all of an inheritance. Fortunately, they may benefit from a step up in basis.

The “basis” of property is the value it had when you acquired it. If the property appreciates in value over time, the difference in the value from when you acquired it to the time when you sell or dispose of it is the amount of the gain, upon which you may have to pay capital gains tax.

Property that was owned by a decedent when he died, and inherited by a beneficiary, is eligible for a step up in basis. The basis for the beneficiary is measured from the fair market value at the time of the decedent’s death. If the beneficiary sells an inherited asset, any capital gains would be measured from the value at the prior owner’s death, not from the time the deceased owner first acquired the property.

This matters because the beneficiary usually will be able to sell the assets quickly without creating a large tax burden, and because a step up in basis often greatly reduces the tax that would be owed.

The step up in basis can be a tremendous value to heirs and beneficiaries who inherit real estate or certain financial assets that had grown substantially over the years or decades since they were first acquired. If contemplating whether to transfer assets while alive or through an estate plan, it can be a factor that preserves significant value.

How long does probate take?

It’s a frequent question when a family member of a deceased person is taking on the role of executor.

In Illinois, an executor (and family members) should expect the process to take a minimum of six months. That period of time allows the executor to open the estate, and for the period in which creditors may file claims to run.

Sometimes, the process takes longer than six months. For example, when the estate must pay taxes, the probate process can last eighteen months or longer, until the tax return is accepted. Also, when there are will contests, the probate process will take significantly longer, until those claims are litigated or resolved.

While the estate is open, there will be a delay in distributing at least some of the assets.

Certain estate planning mechanisms, including trusts and designations that transfer the asset upon death, can make an asset not subject to probate. This can help alleviate the potential delays, and allow the beneficiaries to use the asset sooner than it otherwise may have been available.

If alleviating delays or avoiding costs that could burden your family are important objectives, estate planning may offer help achieve them.

What is probate?

In Illinois, probate is a process in the courts that may be required after a person dies to establish the validity of any will, identify who will inherit the property of the decedent, and to pay valid debts and taxes. The executor is the person in charge of compiling the necessary information, handling the affairs of the estate, and accounting for the assets, payments, and distributions.

Probate may or may not be required, depending on what the decedent owned and how it was held.

When the deceased owned assets worth more than $100,000 in his own name, or real estate of any amount in his own name, probate is required.

Assets held in trust, held in joint tenancy with a right of survivorship, real estate held in tenancy by the entirety (if the spouse remains alive), and real estate for which a transfer-on-death instrument had been recorded, may not have to go through probate, however.

Also, accounts and contracts for which a beneficiary has been designated (such as retirement accounts, life insurance policies, and annuities) may be payable directly.

The probate estate is an entity subject to taxation on income and gains that accrue while the estate is open. In addition, Illinois estate taxes will be due if the estate has a value of $4 million, and federal estate taxes will be due if the estate has a value of $5.49 million (for the 2017 tax year).

Before the estate is closed, the executor must prepare a final accounting for the court to report the income, expenses, payments, and distributions.

How to use a Transfer on Death Instrument to avoid probate of real estate

Normally, real estate is transferred through probate upon the death of the owner, unless another arrangement is made. One way to avoid probate for Illinois residential real estate is through the transfer on death instrument, or TODI.  This is executed by the Owner in favor of one or more beneficiaries. The TODI must be recorded with the Recorder of Deeds after execution, but the transfer does not take effect until the Owner’s death.

Requirements for Validity

The TODI must comply with the requirements for the execution of a deed (age 18 or older, of sound mind, signed in front of two witnesses and a notary public); must state that the transfer occurs on the Owner’s death; and must be recorded in the county where the real estate is located prior to the Owner’s death.

Revocation

Revocation can occur through a subsequent TODI that revokes the prior beneficiary designation, or a revocation instrument. Both must be executed with the same formalities as a TODI and must be recorded prior to the Owner’s death to be effective. All owners must revoke for revocation to be effective. In the event multiple TODIs have been recorded, the most recent controls.

Owner’s Interest in the Real Estate

During the Owner’s life, the beneficiary has no legal rights or interest in the property. The Owner may sell, mortgage, lease, or deed the property during her lifetime without the consent, knowledge, or involvement of the beneficiary. If the real estate is sold or transferred, the bequest will fail.

Upon the transfer, the beneficiary takes title subject to all liens, encumbrances, mortgages, assignments, contracts, and options to which the property is subject at the Owner’s death.

Death of Owner

When the Owner dies, the TODI designated beneficiary must record a Notice of Death Affidavit and Acceptance with the Recorder of Deeds in the county where the real estate is located. Once recorded, the transfer is effective as of the date of the Owner’s death. If not recorded within two years of the Owner’s death, the TODI will be void and ineffective.

The real estate passes to the beneficiary without convent or warranty of title, even if the TODI contains provisions to the contrary.  The beneficiary receives a step-up in the basis of the real estate to the value at the date of death of the Owner.

Uses and Limitations of a TODI

TODIs can be a cost-effective method to transfer real estate outside of probate, particularly for persons who have limited holdings and who do not need to support dependents or other needs better handled through a trust. They are revocable and do not prevent the Owner from selling the property during his life. TODIs do not provide substantial asset protection features, however, nor do they address any other aspects of the estate.

 

How to transfer your out-of-state vacation home without probate

Having an out-of-state vacation home can be delightful. But when the owners pass on, it can be a headache for the next generation.

When a person dies, assets that he owns in his own name are subject to probate. Probate is a process in court for the accounting of assets, payment of debts and obligations, and distribution of what remains.

When those assets include land located in another state, then an ancillary probate may also need to be opened. An ancillary probate is a second proceeding in another state. This usually adds to the time and cost of settling the estate.

Fortunately, there are alternatives to holding title to the vacation property outright. One way is to hold the real estate in a trust. Transferring the property into a trust means that its ownership will be subject to the trust provisions. For example, the grantor of the trust can reserve the use of the property while he is alive, and have it pass to the named beneficiaries in the manner specified in the trust agreement, rather than through probate.

That is one way to ensure that the trips to that second state are to actually use the vacation home to relax, not to attend court proceedings. It also saves on legal fees and costs that would be associated with opening a second case in that second state.

In order to take advantage of this approach, the trust agreement must be executed, and the property must be transferred into the trust correctly. But doing so is another step forward in building and preserving a legacy for future generations.