The goal of Estate Settlement is to settle up the affairs of a decedent and to move assets from the Estate of a decedent to the decedent’s beneficiaries. A beneficiary might be the surviving joint owner of an account or residence, the beneficiary named in an insurance policy or retirement account, the people named in decedent’s Will or the decedent’s heirs-at-law if the decedent died without a Will. The processes of settlement and distribution are a function of the way in which decedent owned title to his or her property before death. Here some settlement option are explained.
Overview of Estate Settlement: going to Court
If decedent died with a Will: As explained in the next section, not every Will must be submitted to the Court for probate.
If decedent died owning assets solely in his or her own name which do not name a beneficiary, then it will be necessary to go to Court. Here are two different Court scenarios.
If decedent died with a Will, then the Will is submitted to Surrogate’s Court (along with other documents). This is called a Probate Proceeding and the person named as Executor in the Will is asking that the Will be admitted to probate. By admitting a Will to probate, the Court is validating the Will and officially appointing the Executor. It is the job of the Executor to marshal/collect the probate assets, pay decedent’s bills, and make distribution of decedent’s probate estate according to the terms of the Will.
If decedent died without a valid Will, a court proceeding is still necessary. Now the proceeding is called an Administration Proceeding. The Court will appoint an Administrator whose job it is to settle the decedent’s Estate. As with a Will, the Administrator will marshal/collect assets and pay decedent’s bills. However, if there is no Will, the Administrator will distribute the administration assets to decedent’s heirs-at-law as determined by a NYS statute.
In either case, there are procedures an attorney will follow to settle an Estate. Estate Settlement procedures are not always intuitive. There are numerous legal steps (as well as practical steps) necessary to deal with collecting assets, settling potential claims, estate tax and income tax issues, and comply with Court rules. There are time deadlines for certain acts. The final step before distribution is often an Accounting so the Executor or Administrator can be released of all liability. An Accounting can be informal (also called non-judicial) or can be done in Court (judicial). Estate settlement needs professional advice and information.
Overview of Estate Settlement: When Probate or Administration is not necessary
If ALL of decedent’s assets pass automatically upon his or her death, then a full probate or administration proceeding might not be necessary. This automatic passing is sometimes referred to as passing by operation of law.
NOTE that avoiding probate might be a goal for some people, usually probate is not a big problem And there can be tax and creditor implications of owning property in any of the following ways which avoid probate. The various estate planning goals must be weighed to avoid a bigger problem.
Some examples of passing assets by operation of law are:
Beneficiary designation: Life insurance policies and retirement accounts, name a beneficiary who is entitled to the proceeds of policy or account, upon the death of the decedent/owner. The beneficiary is paid automatically and the asset does not go through probate. Note that the beneficiary of a retirement account should seek professional assistance regarding whether to take distribution or roll over the account into a beneficiary IRA and there are numerous restrictions, creditor implications, and tax implications of a beneficiary IRA.
Payable on Death accounts. Decedent can name a beneficiary to receive the funds in decedent’s bank or brokerage account upon decedent’s death. The balance in the account is transferred to the surviving beneficiary without probate.
Joint tenancy with rights of survivorship ownership. This is a common way to own real estate, co-ops, condos, stock, stock accounts and bank accounts. When one owner dies, the surviving owner becomes the owner of the entire property. The owners may be married couples or two people who are not even related in any way. Note that there are creditor and tax implications to this type of ownership; it should not be entered into lightly.
Tenancy by the Entirety. This type of ownership is only available to married couples. It is a sub-type of joint tenancy. As above, title will pass to the surviving spouse when the first spouse dies.
Living Trusts a/k/a Lifetime Trusts. A lifetime trust is created by a Trust Agreement signed by a Grantor during his or her lifetime. The Trust Agreement designates how the property is to be used and managed during the Grantor’s lifetime and who gets it when Grantor dies. The trust might be revocable or irrevocable. Property owned in trust will be distributed according to the trust terms and do not go through probate.
It is possible to construct an estate plan in which all assets pass directly, by operation of law. But sometimes an asset might be overlooked, in which case probate or administration might still be necessary. It might be possible to do a simplified Court proceeding. The simplified proceeding is called a Voluntary Administration to settle a small estate. The Voluntary Proceeding can be used whether decedent with, or without, a Will, and even if decedent had a lot of wealth passing directly to one or more other beneficiaries. A Voluntary Proceeding cannot be used to pass title to real estate.
For assistance in settling the estate of a loved one, or for help in estate planning, contact us at Rosenthal & Markowitz to schedule a consultation.