The death of a loved one can be a very traumatic experience. To add to the emotional anguish, often a family member or close friend is left to deal with the decedent’s financial affairs. This can be an overwhelming experience for people unfamiliar with estate planning and probate law.
What Is Probate?
A probate is a court proceeding, the purpose of which is to ensure creditors are paid; the remaining assets are distributed to the estate heirs in accordance with the terms of a will, or according to intestate succession if there is no will. To begin the probate process, a petition is usually filed seeking admittance of the will to probate and to have the petitioner appointed as personal representative by the probate court. The filed petition is published in a newspaper, and notice is provided to all interested parties.
Sometimes, those that receive notice of the hearing can seemingly oppose the petition for several reasons; this may include a claim that the will presented is not the last will, or perhaps an allegation that the proposed personal representative exerted undue influence over the decedent. In most cases, the petition to appoint the personal representative is not opposed, and the original will, if any, is admitted to probate.
What Are the Duties of the Personal Representative?
Personal representative is a generic term used to refer to the executor or administrator of the estate, or anyone performing the function of administering the estate. The estate attorney and the personal representative are a team that must work together to administer the estate. The estate attorney has a long checklist of items to complete with the assistance of the client.
Upon being appointed by the Court, the personal representative receives a document titled “Letters Testamentary” or “Letters of Administration.” This document will be recognized by third parties as the legal authority given to the personal representative to transact estate business. For example, this document will allow the personal representative to gain access to bank accounts of the decedent and to sell real property. Administration duties include:
- Notifying creditors of the estate;
- Notifying certain government entities of the death of the decedent;
- Obtaining an EIN number from the IRS;
- Accessing the decedent’s mail to review and monitor creditor issues;
- Establishing estate bank accounts and transferring the decedent’s funds into said accounts;
- Preparing and filing an inventory and appraisal of estate assets;
- Preparing and filing all necessary tax returns for the decedent and the decedent’s estate;
- Negotiating and settling any and all creditor claims;
- Determining whether estate real property must be sold, and engaging real estate professionals to sell property as necessary;
- Providing proper notice to interested persons concerning disposition of estate property;
- Liquidating estate assets as necessary to allow for distributions to estate heirs;
- Petitioning the court to approve a first and final report, and requesting an order of distribution and approval of executor and attorney’s fees and cost;
- Distributing assets to the heirs under the terms of the order; and
- Petitioning the court to close the estate once all estate property is distributed and all administrative expenses are paid.
The probate administrative process as outlined above may take as little as six months to a period of years, depending upon how long it takes to sell the estate real property and other issues that may arise.
Creditors are paid and have priority over heirs including funeral costs, outstanding credit card debts of the decedent, medical expenses not covered by insurance, and utility bills. After creditors and administration costs are paid, the remaining assets are distributed to the heirs.
What Does It Cost to Administer a Probate Estate?
Administration expenses are divided into two categories: (1) court costs, and (2) attorney’s fees and executor fees.
Court costs consist of the initial filing fee, newspaper publication fees, commissions and fees charged by the Probate Referee to value assets included in the Inventory and Appraisal, court document certifications, and additional filing fees for any motions or petitions that may be filed before the close of the case. Typical court costs will be in the range of $1,000 to $2,000, plus the commission and fees charged by the probate referee for valuing the estate at 1% of which the value of the items were appraised.
There are two divisions of personal representative and attorney compensation: ordinary fees and extraordinary fees. Ordinary fees are fees that are considered normal and usual in the administration of the estate. Most administration duties fall under the category of ordinary. While ordinary fees may be negotiated, in most instances they are paid according to the fee schedule set forth in the Probate Code as follows: 4% of the first $100,000 in estate assets; 3% of the next $100,000 in estate assets; 2% of the next $800,000 in estate assets; 1% of estate assets for the next $9 million; one-half of one percent for the next $15 million; and any reasonable amount in estates exceeding $25 million in value to be determined by the court. Both the personal representative and attorney are paid for ordinary fees using the same formula.
Additionally, both the attorney and personal representative may recover extraordinary fees in an amount the court determines to be just and reasonable. Extraordinary fees are fees that may be charged at a reasonable hourly rate. The three most common types of extraordinary fee or services include fees for: preparing tax returns, services for selling real property, and fees and time expended in estate litigation. Because the hourly rate for extraordinary fees is not set by statute, applications for extraordinary fees are carefully examined by the court for reasonableness and are subject to court approval.
As a hypothetical case, consider an estate that consists of a single family residence valued at $300,000 with a deed in the name of the decedent, with money in the bank valued at $20,000, and with miscellaneous personal property located in the family home valued at $10,000. There are also creditor expenses of $8,000 which would be paid in full unless there priority administrative expenses. In the hypothetical case, the following fees and costs would be paid before the net amount is distributed to the estate heirs:
- Court Costs of $4,100;
- Personal Representative Ordinary Fees of $7,600;
- Attorney Ordinary Fees of $7,600;
- Personal Representative Extraordinary Fees of $2,000;
- Attorney Extraordinary Fees of $1,000; and
- Creditor Expenses of $8,000.
In the hypothetical estate, assuming court approval of court costs and ordinary and extraordinary fees, the net sum available to distribute to the estate heirs is $299,700.
How Long Does Probate Last?
Probate administration can be time consuming and expensive because all matters of importance must be reviewed and approved by the probate court based upon various filings and documents that are submitted to the court. When real property is involved and must be sold to liquidate estate assets, it is not unusual for a probate to last one to two years.
Can Probate Be Avoided?
Much of the costs and delays that are inherent in the probate process can be eliminated through the use of a revocable living trust. The cost of an average probate for an estate valued at $300,000 is approaching $20,000, while a fundamental estate plan that includes a revocable living trust, can be prepared for a fraction of the cost.
How Our Probate and Estate Planning Attorneys Can Help
If you find yourself having to administer the estate of a loved one because you are named in a will as the executor, or perhaps because there is no will, the attorneys at NewPoint Law Group have the knowledge and experience to guide you through the probate process in an efficient and compassionate manner. To schedule a free consultation, call 1-800-358-0305 or contact us online today.