Estate Admin

The Probate Process

Probate is a term that is used in several different ways. Probate can refer to the act of presenting a will to a court officer for filling; such as, to “probate” a will. More generally, probate refers to the method by which the estate is administered and processed through the legal system.

Many people thing that probate applies to you only if you have a will, but this is incorrect. The estate will be probated whether or not you have a will. If you have a valid will, then your will determines how your estate is transferred during probate and to whom. If there is no will, or if the estate passed partially intestate (there is a will, but it doesn’t cover all the estate’s property), the laws where you live specify who gets that part of your estate.

At most basic levels, the probate process involves two steps: 1) The paying of debts and 2) the transfer of assets to beneficiaries.

The probate process will be initiated in the country of the decedent’s residence at death. Someone wasting on behalf of the decadent with come forward with the decedents will.usuall, this person is named in the will as executor, chosen by the decedent. If there is no will, someone must ask the court to be appointed as the administrator. If there is a disupute over who should serve as administrator, the court will appoint a netural administrator who can be counted on to be fair. This person will be paid an hourly fee from the estate funds.

A state court called the probate court oversees the probate process. Because prbate courts are state courts, the processes they follow may vary from state to state. However, these courts all generally follow the same basic processes and steps, including 1) Swearing in a persaonl representative, 2) Notifying heirs, creditors, and the public of death, 3) Inventorying property, and 4) Distributing the estate, which includes paying bills and any taxes.

1) Swearing in your personal representative

An executor / administrator is also referred to as a Personal Representative. In a will, a decedent may name who he or she wants to serve as a executor / personal representative. This will be the person in charge of the estate after the decedent’s death. However, the personal representative will be named by the court in certain circumstances, such as death without a will, when the will doe not name a personal representative, or where the individual named a personal representative has predeceased the decedent, or cannot serve as representative for some other reason. A family member, such as a spouse or an adult child, can request that the court appoint him or her as the personal representative for the estate.

The personal representative will file a document called a Petition for Probate of Will and Appointment of Personal Representative with the probate court. This petition begins the probate process. A date will be set for the individual named as personal representative to appear before a judge, present the will, if any, and ask to be formalled appointed, After a will’s validity is established, usually by simple inspection of the document, the court will issue an order admitting the will to probate. This is recorded by the county clerk. Once probated, a will is public record, open to inspection by anyone.

The personal representative will then be formally appointed by the court before officially entering into office. Usually this involves that the personal representative take an oath of office, after which he or she will then receive the official documentation showing his or her status.

This court gives the representative a certified document called Letters testamentary, or Letters of Administration, which must be honored by financial institutions and others. These letters give the representative the full legal authority to act on behalf of the estate. The personal representative has a wide array of duties and requirements.

Duties of the Personal Representative

The personal representative should generally not act until the will is probated because he or she has not been officially given the authority until then. The executor should, however, pay for the funeral and take care of estate property before appointment if necessary, such as maintain real estate or continuing to operate a business. The representative may hire with estate funds laborers, lawyers, accountants, and other professionals for assistance, if required.

It is prudent for the personal representative to demonstrate openness by providing notice of what is going on to all heirs and beneficiaries. This may even be required by state law. Often a decedent has specifically named his heirs as the beneficiaries under his will. The personal representative’s notice should state what action is about to be take, indicate the court where the estate papers are on file, and be accompanied by a copy of the will, if any. This small courtesy can prevent suspicion and bickering and is good legal strategy. If a part has received this notice, and has an objection but fails to come forward, that party may find it very difficult to be heard by a judge later. For this reason, a personal representative should also give individual written notice to the known creditors of the decedent even though notice is published in the newspaper.

Absent his or her own negligence or wrongdoing, the personal representative is never personally responsible for satisfying claims or lawsuits against the decedent or the estate itself. But the personal representative does have a duty to gather whatever estate assets exist and to pay the decedent’s lawful obligations as far as possible. Meanwhile, the creditors, if any, have a prescribed period of time to come forward. So the personal representative could become personally liable for the debt if he or she has given to the heirs or beneficiaries what should have done to a creditor.

The personal representative must also act immediately to prudently invest estate assets. The imposed a fiduciary duty on personal representative to act cautiously and always to have the best interests of the beneficiaries in mind. If this duty is violated, and a loss or waste of assets results from the violation, the personal representative may be ordered to pay compensation personally to the beneficiaries.

The personal representative will not be held responsible for a poor return on estate investments, as long as any investments chosen by him or her are appropriate. By contrast, if the personal representative lost money on risky speculative investments or failed to get a reasonable return by leaving substantial assets in a checking account, these would probably be considered inappropriate, and he or she might be individually liable.

The personal representative is entitled to a reasonable compensation. Extra compensation related to handling some special matter may be allowed by the court. The fee taken is usually listed on the final report and is subject to approval by the court. Some states have an official “reasonable” fee scale for personal representatives and probate attorneys. These may actually be higher than fees in comparable cases in states that do not have official fee scales.

An objection can be raised if the fee appears excessive considering the time and effort actually expended. Professional fees (lawyers, accountants, appraiser, will also be allowed. These fees must be reasonable too, but are not subject to a set limit.

2) Notifying creditors and the public

Some state laws require your personal representative to publish a death notice in your local paper. The death notice serves as public notice of your estate’s probate, and enables those who may have an interest in your estate (such a creditors) to file a claim against your estate within a specified time period.
Notice is part of the process to make the matters of your estate part of the public record. Some people view the general public’s ability to review your private estate matters as one of disadvantages of the probate process.

3) Inventorying property

The personal representative must inventory the different types of property, real and personal, that make up the estate so that its value can be determined. This inventory is important for a few reasons.
First, it enables the representative to determine if the estate’s value is sufficient to pay all debts and distributions to beneficiaries. If the estate does not meet the obligation of creditors and property transfers to beneficiaries, then it will subject to abatement statues. Creditors take priority over heirs and beneficiaries in the distribution stage of probate, and abatement can result in one or more beneficiaries receiving less, or possibly nothing at all.

Second, inventorying the estate ensures that all property is accounted for. The personal representative is in charge of collecting and inventorying the estate’s assets to make certain that all property is available for distribution when probate ends. If any property is missing, or any specific devises no longer in the decedents no longer owns that a car at the time of his death, the gift is said to adeem. Ademption statutes determine if a replacement asset or cash should replace the missing property intended to pass a beneficiary.

The inventory will include assets such as money owed to the decedent or estate, such as loans, a final paycheck, or retirement accounts made payable to the estate. The inventory and its value must be filed with the court. Valuing real estate property (for example, a collection of antiques) may require professional appraisal.

4) Distributing the estate

The last step in the probate process is distribution of estate property. Ideally, the estate will have sufficient assets to pay creditors and beneficiaries. The personal representative will never be personally responsible for paying expenses out of his own pocket if estate funds are not available. The surviving spouse and children are generally given an allowance under law. This allowance generally comes “off the top,” and is set-aside first.

Following this allowance, creditors that have valid claims will be paid in the following order (though the order may vary from state to state):
-Costs/ Expenses of Administration
-Funeral expenses
-Debts and Taxes
-All other claims

The personal representative reviews the decedent’s final bills, debts, and any of claims against him or her, as well as a supporting proof of those claims. The representative then pays or settles the valid claims, and rejects the rest. Rejected claims may need to be handled in court.

It is almost important to emphasize the fact that taxes must continue to be paid for the decedent, including income taxes. If the decedent was still receiving taxable income in the last year of his or her life, then that income will have to be properly reported on incomes taces for that filing period. Other taxes will be paid by the personal representative in the hand with the debts of the estate.

Whatever remains after the creditors have been paid will be distributed to the heirs or to beneficiaries named in the will. If a person dies without a will, the laws in the state determine how property will be distributed. The personal representative generally has the discretion to distribute the estate in cash or in kind (the property itself), but the will can specify otherwise.

A final settlement or an accounting is generally required of all the personal representative’s dealings on behalf of the estate. Any party who intends to object to any aspect of the probate proceeding should come forward and be heard at this point, if not sooner. Once the probate judge approves the final settlement, the personal representative will have no further duties, and the estate no longer exists.

If probate proceeds accordingly and all notices and communications are handled properly, the personal representative is generally protected against any subsequent, late-arriving claims.

One of the biggest concerns for any individual considering hiring a professional to assist with estate administration is the costs involved. Depending on the services involved, where they are simple or complex, there are three types of fees. There is a flat fee, the hourly fee, and the contingency fee.

Flat Fee

The flat fee is the simplest fee, and corresponds with the simplest of administration to be performed. The flat fee is a specific stated amount for a specific amount of work performed. For example, certain attorneys may simply charge a set fee for creating a basic Last Will & Testament, or a Durable Power of Attorney. Based on what work needs to be performed, and the attorney in question, the fees charged can slide from less to more expensive.

We can’t an estate planning attorney always just charge a flat fee? Because estate planning is never “one size fits all” or even “one size fits most,” so estate planning fees can’t possibly one size fits all.

Hourly Fee

The hourly fee is a fee that is determined as legal work continues based on the amount of time it takes to complete the work performed. The rates that the fees are assessed may vary based on many factors, including the type of attorney, the level of experience held in the area of law, or the area of the country / state.

The final fee is based on total amount of work performed. Attorneys keep track of their billable hours while performing them. Generally, the hours are broken down into six minute increments, and each six minutes results in the accrual of 10% of the hourly fee. The prevents the possibility of over-charging.
In Pennsylvania, it is important to note that it is within the power of the Orphan’s court to supervise the conduct and compensation of lawyers in Estate Administration matters.

The PA Supreme Court has adopted general guidelines, borrowed from the PA Rules of Professional Conduct, for determination of attorney fees, and will consider the following:
the amount of work performed;
the type of services rendered;
the difficulty of problems involved;
the degree of responsibility incurred;
the professional skill and standing of the attorney in his profession;
the results obtained;
ability of the client to pay a reasonable fee for services rendered; and
the amount of money or value of the property in question.

The determination of fees will rest with the auditing judge, and is a question within the discretion of that judge, so the determination will not be changed, except for cases of “palpable error.”

Contingency Fee / Johnson Estate

Contingency fees are, generally, the fees for services provided where the fee is only payable if there is a favorable result. Contingent fees are usually determined as a percentage of the client’s net recovery. Contingency fees are not available for certain situations. For example, they cannot be used in family law or criminal cases. Generally, these fees will be allowed as long as they are considered to be reasonable.

As related to estate planning in Pennsylvania, an attorney may take as payment for services a percentage of the value of the estate. A reasonable PA attorney fee is based on a case decided in 1983, In re Johnson Estate, 4 Fid.Rep.2d(O.C. Chester 1983). Prior to this case, in simple terms, attorney fees were all over the place. Finally an executor sued an attorney and said, “Mr. Attorney, your fees are completely unreasonable.” The case was litigated in auditing the accounts of estates. Since then, several other judges have written opinions indicating that they use this schedule as well. While the fee schedule is not binding authority, it does provide guidance in determining how reasonable administration costs are or are not.