start to final distribution. Of course, if there is no
will, the probate procedures are still very much the same. The main difference
is that the intestate succession laws serve as the guide rather than the will.
Will or no will, most of the steps are the same. The notices, the marshaling of
assets, the filing of an inventory, reports to the court, filing an accounting,
and obtaining an order for distribution all have to be done.
NONPROBATE VERSUS PROBATE ASSETS
In a sense, the probate process stands last in line. Only
that property for which there is no other mechanism of transfer is swept into
the probate process. As discussed in the last chapter, the other mechanisms
include certain title, contract, and trust arrangements. About all that is
left, after the nonprobate mechanisms are taken into account, is property held
in the decedent’s name alone, or held with others as tenants in common or with
a spouse as community property. Even community property may avoid probate if it
is left to the surviving spouse.
Like probate,
the nonprobate mechanisms for transfer are sanctioned by law. However, they are
subject to much less state supervision. With title held as tenancy by the entirety or joint
tenancy, the right of survivorship results in the automatic transfer of
ownership to the surviving co-tenants, with the right previously held by the
decedent-owner ceasing immediately on death. This automatic transfer is said to
be a transfer by operation of law.
Although title may pass automatically, as a practical matter, additional steps
may be necessary to clear title to joint tenancy property. The decedent’s name
will need to be removed from the actual documents. Fortunately, this is usually
processed quickly by the authorities (banks, motor vehicle bureau, etc.) when a
surviving cotenant appears before them with a certified copy of the death
certificate. For real estate, to satisfy title companies, the survivors will
have to record, in each county where the jointly held land is located, a
notarized “affidavit of death of joint tenant” verifying that the person
identified in the attached certified death certificate was the co-owner of the
parcels identified in the affidavit.
Property that, at the decedent’s death, is
held in a revocable or irrevocable living
trust is not held in the decedent’s name, but rather the legal title is in
the name of the trustee. Since probate administration is concerned with
transfer of property held in the decedent’s name (individually or
concurrently), property held by a trustee is not subject to probate
administration. If, in accordance with the underlying trust document, the
trustor’s death triggers a transfer out of trust to the remainderman, the
transfer process is uncomplicated. The trustee simply makes the distribution by
deed or assignment, depending on the nature of the assets.
Where the
decedent settlor (trustor) was serving as trustee at the time of his or her
death, most state laws allow the successor trustee to immediately take over the
administration of the estate. Hence no probate administration is required. The
successor will have to establish for the benefit of those involved with the
transfer process (e.g., brokerage houses, title companies, etc.) that the
settlor is dead, by producing a certified death certificate, and that he or she
is the successor trustee, by some reliable means such as an official photo
identification (e.g., the successor trustee’s driver’s license). A reliable
copy of the trust or a short form of the trust may have to be shown also.
Property owned
by the decedent to be transferred at death into,
rather than out of, a trust will be subject to probate administration. In such
instances, the probate process is the funding mechanism for the trust. This
will occur for all testamentary trusts because no separate trust exists prior
to the death of the testator. Near the conclusion of the probate, the court
order for distribution to the trustee has a dual purpose: (1) it serves as the
trust funding mechanism, and (2) it serves as the trust document since the
terms of the trust, taken from the will, are repeated as part of the order.
Where real property is transferred pursuant to a probate order for
distribution, whether to the trustee of a testamentary trust or to someone
else, no deed is necessary. Rather, the executor records a certified copy of
the order in the county where the real property is located. Generally, when a
living trust is used, a probate is unnecessary. Nevertheless, the trustor will
have created a pour-over will, so called because it scoops up assets left out
of the trust and “pours” them into it. This “pouring” is done through the
probate process, which concludes with an order for distribution to the trustee
of the living trust. Of course, with the living trust, the order does not
include the language of the trust because it is already in existence as a
separate document.
Property
disposed of by contract, including life
insurance proceeds on the life of the decedent and retirement benefits, is not subject to probate administration
because title to such assets is not held by the decedent. Instead, title is
held by the insurance company or the pension fund, respectively, and each has
agreed to transfer title directly to the named beneficiary at the death of the
decedent. The insurance company or pension fund pays the named beneficiary in
accordance with the payout option selected by the decedent or by the
beneficiary. Note that the law sanctions the transfer by contract of only
certain kinds of assets, mainly those that are closely connected to death
(insurance) or retirement (pensions and the like).
Because the law
does not sanction a general contract (as opposed to a trust agreement) as a
testamentary transfer device, a person attempting to contract with a friend for
the transfer of all his or her property after death would be unlikely to
receive the cooperation of those entities holding the decedent’s personal
property (e.g., banks, brokerage firms, etc.) or the blessing of title
companies for transferring the decedent’s real estate. In addition to not
avoiding probate, because the contract would not be executed with the
formalities required of a will, it probably would not serve as a guide in the
probate process either.[1]
In contrast with
title held in joint tenancy, title held by a decedent either as an individual, as a tenant in common, or as community
property does not in itself create a mechanism (or guide) for title
transfer. As a result, the states have established the probate process to
transfer title, using either the decedent’s will or the laws of intestate
succession as the guide.
Although it is
difficult to gather accurate statistics, it is generally estimated that about
half of all adults die without a will. In such circumstances, the state’s
intestate succession laws will determine proper distribution of property for
which there is no other guide for transfer. The mechanism for the intestate
distribution is the probate process. In fact, probating an intestate decedent’s
estate might be even more important than for a testate decedent, to ensure
correct identification of heirs as well as to ensure distribution to them.
Figure 4-1 diagrams the probate and
nonprobate interests of a decedent at the moment of death. The left side
contains probate assets, including the decedent’s one-half interest in
community property, the decedent’s interests in probate held in common with
others, and the catchall--all other probate property owned individually by the
decedent. This would include the value of life insurance on the life of another owned by the decedent. Of course, where
there is co-ownership, the portion of the interest held by others, whether as tenants in common, joint tenants, or as
community property, is not part of the decedent’s probate or nonprobate estate.
One should also note that some community property states, such as California,
no longer require a probate for property going to a surviving spouse, whether
going to her (or him) by virtue of the decedent’s will or by intestate
succession. Those states may require the surviving spouse to file a simple
request for confirmation by the court of the survivor’s right to take the
property, followed by notice to interested parties, then a hearing, and,
finally, a court order granting the confirmation.
The right side
contains the nonprobate property, including interests in living trusts that are
revocable by the decedent, property held in joint tenancy or as tenants by the
entirety, life insurance policies on the decedent’s life other than those
payable to the decedent’s estate, and certain other nonprobate interests. Life
insurance proceeds payable to the decedent’s (probate) estate must, by
definition, be a probate asset, since the probate estate will collect the
proceeds and hold them pending an order for distribution. Policies issued since
World War II are not likely to be paid into the insured’s probate estate. In
addition to having several layers of alternate beneficiaries, the policy will
probably have a provision very similar to intestate succession designating the
order of beneficiaries in the event that the named beneficiaries predecease the
insured and only as a last resort have the proceeds payable to the decedent’s
estate.
The logic of
Figure 4-1 suggests a relatively straightforward procedure to determine which of a decedent’s assets will be subject to probate
administration. First, list all the decedent’s property interests held
immediately prior to death, including all insurance policies. Then delete from
the list all assets for which there is a nonprobate mechanism of transfer, such
as property in living trusts, joint tenancy property, and interests payable to
a designated beneficiary, such as life insurance, pensions, and finally
miscellaneous nonprobate interests such as Totten trusts. What is left should
be the decedent’s probate estate, mostly property in the decedent’s name alone
(including insurance on another’s life) or held with others as
tenants-in-common, and for states that still require probate for community
property even when it goes to the surviving spouse, the decedent’s half of the
community property.
So far, we have
seen how the decedent’s probate property is determined. The next logical step
is to decide who will receive this property. For this, one first looks to the
will. If there is no will, the state laws of intestate succession are applied.
Details of these succession laws are covered next.
INTESTATE SUCCESSION LAWS
We have seen that a person who dies without a will is said
to die intestate and that any probate property will then pass under the state’s
laws of intestate succession. Further, a person receiving property under these
laws is called an heir and is said to inherit the property.
In determining
who should inherit, the members of the various state legislatures have used
their knowledge of human nature (and a little intuition) to design estate plans
for persons dying intestate. Thus, they usually give priority to the decedent’s
spouse, next to the decedent’s issue, and, if there is neither spouse nor
issue, then to the decedent’s other blood relatives, with priority given to the
closest relatives. We will review the Uniform Probate Code’s version of
intestate succession after we cover degrees of consanguinity (kinship) and
several alternative patterns for allocating property among a decedent’s
relatives. These concepts are relevant to both intestate and testate property
distribution. They are important to understand although they are quite
technical because they can make major differences in how money and property are
distributed.
Degrees of Consanguinity