Posts Tagged ‘probate’

Who has the Authority or Can he really do that?

Monday, May 24th, 2010

It is easy to forget or not realize some very important points about probate.  Probate is a process that only occurs in Court.

A Will is just a piece of paper until someone dies and a Probate Court decides that it is valid.   Once in probate only the personal representative of the Estate has the authority to make decisions about property in the estate.   Sometimes even the personal representative (also called executor or administrator sometimes) does not have the authority until the Judge says he does.

An estate is not in “probate” until an application is made to a Court with the proper authority and a person is appointed to manage the estate.     If you are named as Executor in a Will you have no authority to do anything until a Judge says you do. So to be safe, take the Will to an attorney and find out what needs to be done.

This means that  frequently no one should pay bills outside the probate process,   release control of assets to a creditor or third party or make other decisions about the estate until a competent attorney has been consulted and a probate estate opened.

To do any of the above actions outside probate could create financial liability to the creditors and/or beneficiaries of the estate by the person acting without authority.   If you are not the Executor or Administrator,  even if you are named as Executor in a Will but have not yet been to Court, do not take actions that cannot be changed later.

Only the person named by the Court to manage an estate has the authority to make decisions about an estate.  Often the Executor will only make those decisions after careful consultation with an attorney, discussion with the beneficiaries and sometimes not until the issue is presented to a Court.

If you are the named executor and the only beneficiary you can probably act without liability to anyone but a creditor, but acting without legal advice could cost you money you do not have to spend.

If you are appointed as the personal representative of an estate you have special duties that are called fiduciary duties to the heirs/beneficiaries of the estate.  You must be fair to all of the beneficiaries; you must be loyal to their interests–even possibly to the harm of your own interests; you must provide all necessary information to the beneficiaries so that they can make any necessary decisions about their interests; and you must be competent in managing the estate.   These fiduciary duties are often what makes being an executor so difficult  because your duty to one person may conflict with your duty to someone else.

Creditors also have rights regarding assets within an estate and the claims must be dealt with according to the Texas Probate Code.    It is not uncommon that a creditor will make a demand that it be paid when if payment is left to the probate process it will be denied payment because another party will have superior right to the proceeds or assets of the estate.

Do not assume that because someone is an heir or believed to be an heir or beneficiary that the person has the right to do things with assets of the estate outside the probate process.  Hopefully,  this provides more light than heat.  The blogs about creditors should be read with this one to have a better understanding of the pitfalls a personal representative faces.

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Dealing with Creditors

Monday, May 24th, 2010

It is not unusual that an estate that seems to have an overwhelming amount of debt turns out to have enough assets to pay the valid debts and distribute funds to the heirs or beneficiaries.

The process for dealing with a creditor varies based on the type of administration and the type of debt.  A Dependent Administration is an administration in which all actions by the administrator must be approved by the Court.

An independent administration means that the Judge has little or no control over the actions of the administrator except for admitting the estate to probate, qualifying the personal representative of the estate (usually a person named in a will– who is called an executor) and approving the Inventory, Appraisement and List of Claims.

Assuming the Administrator in a Dependent Estate gives proper notice to the creditor, the creditor only has four months to file its claim once it is given notice of the administration by certified mail.  Failure to file its claim with the Court Clerk within four months of notice by certified mail is also a bar to later assertion of the claim for payment.

In a Dependent Administration a creditor must file its claim with the Court Clerk and serve it on the attorney for the administrator.  The Administrator has 30 days to allow it or deny it.  If it is not allowed, it is automatically deemed denied.  At that point the creditor has 90 days to file suit in the probate court or the claim is barred for failure to prosecute the claim in a timely manner.

The claim must be verified (sworn) and based on personal knowledge with all credits, offsets, charges, payments set forth.    Failure by the creditor to provide adequate information to determine the validity of the debt is a good reason to deny the claim.  If the creditor does not have the required information it cannot prove its claim at trial.

One point that secured creditors frequently forget is that the creditor is forced to choose between asserting its claim to the secured asset on which its lien is based or the right to payment of the claim and waiver of the lien on the asset.

In other words,  do not let the debt collector take the car before the administration is opened.  If they take the car beforehand the creditor will come back for payment of the loss on the sale of the car.  If the creditor takes the car during probate that is all it gets, it loses its right to be paid on any loss on sale of the vehicle.

The process in an independent administration is not as formal.  The claim does not have to be presented through the Court Clerk.  There is disagreement as to whether the four month bar to the claim after notice applies.  This is definitely one area of the law where it pays to consult your attorney and to follow the attorney’s advice.

The amount and type of debt is an important factor in choosing which type of administration will be used.  I will write about how “exempt” assets are treated in probate in a later article.

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New Income Tax Problems & Probate

Monday, February 8th, 2010

We are finally in the tax year no one thought would really happen.   This year we have no “Death Tax”.

Rule 1:  If you are the Executor or Administrator for the Estate of someone who dies this year make sure you talk to an experienced CPA or other tax preparer.  This is going to be an issue missed by many probate attorneys who do not also work with estate planning or tax issues.

The issues for the beneficiaries on their tax returns are going to be complicated and have to do with something called “tax basis”.  The good news is that this year will be the only year probate administrators will need to deal with this issue.   The tax rules that existed in 2000 will lock back into place and we will again be able to use the step up in basis rules again.

Even better is that for those of us with a small estate  our executor can elect to create a “stepped up” basis  of up to $1,300,000.00 of $3000,000.00 if the property passes to a surviving spouse.

Until this year heirs and beneficiaries received a tax basis on inherited property based on the Fair Market Value at the date of death.   Frequently called “stepped-up” basis.  This is a fairly simple value to obtain and results in very little income tax due when the property is sold by the beneficiaries.   This is especially true if the property was sold soon after the death of their parent or spouse.

Now the  beneficiaries’ tax basis is  the tax basis of the person who died (Decedent).    Generally this will be the amount that the Decedent paid for the property plus certain other amounts spent on the property.

More likely than not, most of the Decedents did not keep the records required to establish the tax basis and the beneficiaries will have no idea of where to look for those records.   This could create large income tax bills for beneficiaries with an executor who did not hire a good tax preparer or persons with larger estates.     On the other hand in a large estate the amount saved on not paying the estate tax more than offsets the additional income tax on gains from the sale of what will probably be long-term capital assets that are taxed at much lower income tax rates.

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Why probate?

Friday, February 5th, 2010

I am often called and asked if someone needs to probate a Will.   The legal answer is that the person named as executor has a duty to present the will for probate by the Probate Court.

The practical answer depends on the circumstances.  A Will has several functions or purposes.  The primary purpose for most people is to pass ownership or title to the persons named in the Will.   By presenting the Will to a Court the Will is determined to be valid.   A Will has no legal effect until a Court makes the required determinations that it was properly signed and witnessed, makes a full distribution of the estate, is accepted by the Court as valid and decides if there is a need for administration.

This last phrase is the real question that most people are asking.   One reason to present the Will for probate is that there is land in Texas that is conveyed by the Will, or that there is other property that the executor/administrator can collect and distribute more easily than the individual beneficiaries (heirs).  Stock is one such asset.  Sometimes a Will can be probated without the necessity of an administration, merely a simple hearing and everything is done.

Sometimes the collection of the assets and the sale of those assets is more simply done by having one person to be responsible for doing the various tasks that need to be done.   Instead of five or six people attempting to work out their schedules to sign documents, meet the various attorneys, accountants, realtors, contractors and other persons and agree on the price, etc. the executor makes the decisions and gets the work done so the money and other property can be distributed.

Another reason to probate is that if the Will is not probated the property passes to persons other than those named in the Will.   If there is no Will, Texas has a  law that defines who receives the dead person’s property.  These persons are called “heirs”.  This determination can become very complicated and expensive.  Sometimes the heirs and beneficiaries are the same.  If the person who died was married more than once the  results are frequently different.

A third reason to probate is because there a debts owed that need to be paid out of the estate.  Frequently many of the assets owned by the person who died ( this property is called the estate) can be protected from creditors as “exempt” property by use of the Texas Probate Code.  A “Dependent” Administration is a very effective form of asset protection.

This is not a complete explanation, but hopefully it gives you a good idea of the information that must be considered when deciding if probate is necessary or not.  It is usually a good idea to consult an attorney experienced in probate to find out the best choice.

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