What is Probate Anyway?

Probate is a process that the law has created with a view towards the orderly distribution of the estate of a person who has died.  When I say “orderly” I mean that there is a progression of events that takes place after a person has died that involves “collecting” the persons assets whether they ber personal assets, investments, bank accounts, real estate, etc.  Of course you can’t actually “collect” real estate but the collection process does allow for accounting for the things that a person owned during his or  her life.  As assets are being accounted for by the personal representative (we used to call this person the “executor”), family members, friends, charities, anyone who might have been mentioned in the decedent’s Last Will and Testament, will be notified that an estate has been opened.  Often, the deceased person has not left a will so how the person’s property will ultimately be distributed will be determined by an artificial establishment of one’s “heirs at law.”  More about this concept later.  

At the same time potential estate beneficiaries are being notified, those who may be owed money by the decedent will also be notified that they have six (6) months within which to file claims against the estate.  In addition to “actual notification” of known creditors, a notice will be published for several weeks in a local newspaper that has a general circulation in the area.  Usually this will be a “legal” newspaper which specializes in publishing official “legal” notices of various types including notices that a person has died and estate has been established in the Probate Division of the local circuit court.  Creditors who don’t file their claims within the six month period will be “out of luck” in collecting what they claim is owed them.  The law has established a system of classifying “debts” and the personal representative must pay these debts according to this priority that has been established by state law.  Such items as expenses of estate administration and funeral expenses, medical expenses and taxes are high on the list, as you might imagine.

Once bills and taxes are paid, theorhetically, assets can be distributed to the people named in the will (legatees and devisees – the legal terms for thise folks – a “legatee” is someone receiving personal property and a “devisee” is a person designated to receive real property, i.e., land).  If there is no will then the estate will be distributed to “heirs at law.”  More about heirs at law in a moment.  While the “process” seems simple, it’s not always fast – to the contrary.  The Probate Code envisions a minimum period of time that the estate must remain “open.”  This “minimum” period would be six months – the time within which creditors must file claims against the estate.  In addition to that period of time there is the issue of taxes – while returns may have been filed and taxes paid, Uncle Sam may not think enough has been paid.  What I’m saying is, since the personal representative (executor) is personally liable for taxes under the Internal Revenue Code, he or she will most likely await for written approval from the IRS on tax returns already filed.  Income tax returns are one thing but estate tax returns are another.  Estate tax returns don’t have to be filed for nine (9) months after date of death and this period can be extended for a number of reasons.  It generally takes the IRS quite awhile to review these returns and approve them.  The good news is that few estates will need to file this type of return (Form 706).  

So, the estate “process” seems good – I mean its purpose is to make sure bills and taxes get paid and people who are supposed to inherit do inherit.  Why does probate have such a poor “reputation?”  I can think of two reasons right off.  First, the time it takes to open and close an estate can often take more than a year after a person dies. Second, it can be expensive.  Missouri law, like the laws of most states, allows the attorney for the estate as well as the personal representative to take a fee from the assets that have been administered.  That fee can be steep.  It’s based on asset values (other than real estate unless that property is sold during the probate process).  Each of the attorney and personal represenative is entitled to a fee based on these percentages:  5% on the first $5,000; 4% on the next $20,000; 3% on the next $75,000; 2.75% on the next 300,000; 2.5% on the next $600,000 and 2% on anything over $1 Million.  These percentages can add up quickly.

By the way, you ask, who ARE these “heirs at law.”  The heirs at law, in Missouri, are entitled to a portion of the estate (divided among them).  There could be nine (9) tiers of relatives that are “heirs.”  I’ll only mention the first tier since it encompasses most estates:

If the decedent was married and had a surviving spouse and children, the surviving spouse is entitled to the first $20,000 in value and one-half (1/2) of the balance; the half that does not go to the surviving spouse is divided equally between the children of the deceased person or, if one of the children has died, then to the deceased child’s children, in equal shares, per stirpes.  [The “per stirpes’ term simply means those children of the deceased child share equally the share their parent would have been entitled to if he or she had survived.]  If there is no surviving spouse, the estate is divided equally between children of the decedent (or those children and the children of a child who has died).

Complicated?  It can be.  Something to keep in mind is that not all estates are subjectd to probate administration.  These types of assets are “probate free” in Missouri:  Property owned as joint tenants with right of survivorship with someone else – (or as tenants by the entirety if we are talking about two married people); property held in trust at the time of death; assets which have a beneficiary designated such as an insurance policy or and IRA account or an automobile (this can be a joint type ownership or a “transfer on death” type of ownership.  Each of those types of ownership has “risks” associated with it, but more on those types of ownership at a later date.