01 May The Basics of Probate and Estate Administration
Written by Bradley R. Coppedge, Esq.
I. In General.
Probate is generally a relatively simple process in Georgia and Alabama, if you have a valid Will. It is much less of a hassle to administer an estate under a Will, and your fiduciary (termed an “Executor” under a Will) has broad powers. Without a Will, the person who petitions the court to administer your estate (the “Administrator”) will often have to post bond, file inventories and appraisals with the court, and formally petition the court to sell assets. A person who dies with a valid Will is termed to be “testate”. A person who dies without a valid Will is termed to be “intestate”. A testate estate is “probated”; an intestate estate is “administered”. (Understand, however, that your Executor or Administrator has no power to act on behalf of your estate until the Will has been probated in Court or the Administration granted by the Court.)
There are numerous types of probate and administration procedures, but the most common is called a “Solemn Form Probate”, in which the Will is offered for probate, the heirs are notified and Letters Testamentary granting broad powers are issued to the Executor to authorize the administration of the estate. Similar to this is a “Petition for Administration”, used where there is no Will, which authorizes the Administrator to administer the estate and distribute it to the next of kin. An Administrator is issued “Letters of Administration” which are frequently more restrictive than Letters Testamentary. Another common probate proceeding is called a “Petition for Year’s Support”, and can be used where there is no Will, or where no bequest has been made to a surviving spouse, or where the estate is very small. State law allows a spouse to petition the Court for a minimum amount of support to maintain the spouse for 1 year from the date of death of the decedent, even to the exclusion of unsecured creditors. While there are numerous other “probate” procedures, these three are the most common.
There are several specific categories of assets that are worthy of elaboration, as follows:
- IRAs and retirement accounts. If there is a beneficiary designation on file with the retirement plan sponsor or administrator, these assets are not probate property and instead pass in accordance with the beneficiary designation form, such that the Will has no control over the disposition of these assets. It is nearly always preferable to have a beneficiary designation in place, as without one, the assets must be paid out within 5 years of the decedent’s death, accelerating the income tax on the funds, rather than allowing them to be paid out over a longer term.
- Life Insurance. Like retirement accounts and IRAs, if there is a beneficiary designation on file with the insurance company, this will control over any provision in the Will. Unlike IRAs, however, it is not uncommon to name your estate as a beneficiary. This can provide liquidity to the estate to pay bills or funeral costs, and enable the funding of trusts created under a Will. The only downside to naming your estate is that if the estate is the beneficiary, the life insurance proceeds become an asset of the estate, and as such, reachable by any creditors of the estate. An outright beneficiary designation protects the life insurance proceeds from creditors of the estate. While life insurance proceeds are not taxable to the recipient, they are included in determining the total value of the estate if you own the policy and have a taxable estate for Federal Estate Tax purposes. (see paragraph D. below)
- Pay on Death (POD) or Joint accounts. Under state law, these are almost always non-probate property, such that they are not included in the probate estate, and pass to the joint owner regardless of any Will provisions to the contrary. An example of such an account is a traditional joint checking account, or a CD with a POD beneficiary.
II. Ancillary Probate or Administration.
Where a decedent owns real property in more than one state, it is generally necessary to probate or administer the estate in each such additional state where property is owned. This procedure is known as an Ancillary Probate or Ancillary Administration. Oftentimes this will be a more expedient process than the original probate or administration as many states will accept a certified copy of the original proceedings.
You may wonder whether the probate or administration process is an expensive process. It is generally not expensive in Georgia and Alabama, unlike some other jurisdictions. Depending on the complexity of the Will and the issues involved, the attorney fees for probate of a relatively simple Will for a nontaxable simple estate are frequently in the range of $1,500 to $3,500, plus costs such as filing fees, publication, and the like (usually under $500). Administrations (ie, where there is no Will), are generally only slightly more expensive. A fee estimate from your attorney would normally include initial meetings with the attorney, his or her preparation and filing of the probate or administration petition, the probate proceedings in Court, and services in connection with the transfers of assets, including the preparation of any deed for a house for example. Obviously, the more complex a Probate or Administration becomes, the more costly it becomes.
V. Estate (Death) Tax.
Will there be an estate tax due at death? For most people, no. The current federal estate tax laws allow a person to leave over $11,500,000 to whomever they wish at death prior to any estate tax being incurred. Moreover, amounts that are received by gift or inheritance are not subject to income tax by the recipient. Upon receipt of an inheritance, the only tax, if any, would be the gift or estate tax, which would be paid by the donor or from the estate of the decedent, if the gift amount exceeds the exemption amount addressed above. Currently, neither Georgia nor Alabama have a state death or inheritance tax.
VI. But what about the Power of Attorney I have?
A power of attorney always terminates upon death, and will not be of use for an estate. Also, as noted above, even if there is a Will that names an Executor, that person has no legal authority to act until the Will has been probated. It is the probate process that empowers the Executor.