All most people know about Probate is that it is a process to be avoided if possible. Probate is the name of the process through which a deceased person’s debts are paid and their assets are distributed under Court supervision. The Probate process can be rather complicated and can take months or even years to complete. However, not every estate needs to be probated so one of the first questions a potential administrator or executor needs to know is whether or not they need to formally open an estate. This article discusses the circumstances under which formal probate can be skipped, but is not a detailed discussion of the procedures to be followed when formal probate is not necessary.
First, it is more likely that you will be able to avoid formal probate if the deceased was your spouse and you are sure that you are the only (sole) heir. Heirs are determined by the deceased’s will or by statute if the deceased did not have a will. If the will names the deceased’s spouse as the sole heir or the deceased died married, without children or parents, then the spouse is the sole heir.
In addition, the need to probate an estate is largely depends on two considerations: (1) whether or not assets need to be transferred into the name of the heir(s) and (2) whether or not the deceased had debts for which the surviving heir is not already personally liable.
Which assets do not have to pass through probate?
Some assets do not have to pass through probate to be transferred into the heir(s)’ name(s). Generally, if the asset has a beneficiary and that beneficiary is not the deceased’s estate, then those assets probably do not pass through probate. In general, the following are assets that do not need to pass through probate:
- Property in a living trust
- Life insurance proceeds
- Funds in an IRA, 401(k), or other retirement account that lists a beneficiary (other than the estate)
- Securities held in a transfer-on-death account
- Payable-on-death (POD) bank accounts (aka Totten trusts)
- Joint bank accounts with a right of survivorship
- Property you own with someone else in joint tenancy or tenancy by the entirety (most property owned by married couples)
Frequently, people will say that the deceased died not owning anything. The reality is that most people die owning something, even if it is only $50 in cash and some personal effects like used clothing. Personal property is usually in the possession of the heirs and does not carry an official title that needs to be transferred. As a result, someone would not need to open an estate to transfer these assets either.
Do the heirs have to pay the debts of the deceased?
However, heirs that wind up in possession of the deceased’s property need to be aware that creditors have a right to force an estate to be opened and a personal representative appointed to sell the deceased’s property to pay debts. If the deceased had credit card debt, car loans or other obligations, the heirs would be wise to consider opening a formal estate and taking advantage of the protections afforded by providing notice to creditors under NCGS 28A-14-1. Doing so triggers an obligation for the creditors to formally notify the estate of their debt within a particular time frame or they will be unable to do so later.
What is Collection by Affidavit?
Collecting assets by affidavit is a simpler process than formal probate. However, it cannot be used to sell real estate or assets whose value (minus liens) is valued more than $20,000 or $30,000 (depending on who the heirs are). There are specific requirements for the affidavit and creditors of the deceased still must be paid under this procedure. Some of this information is available here: http://www.nccourts.org/courts/crs/policies/localrules/documents/1877.pdf. Forms necessary to collect by affidavit are here.
If real estate is owned by the deceased at the time of their death, it may not be necessary to open an estate as discussed above, but it will be necessary to appoint a personal representative if the heirs plan to sell real estate within two years of inheriting it. In addition, the process of giving notice to creditors during formal administration is not required by statute when collecting by affidavit, but individual clerks have the discretion to require the process if they so choose. Providing formal notice to creditors insulates the personal representative of the estate from creditors’ claims.
What is Summary Administration?
Summary administration is a process that is available only if the spouse of the deceased is the sole heir. It can be used regardless of whether the deceased left a will as long as the will does not forbid summary administration. In addition, if any property is passing to the spouse via a trust, then summary administration is not appropriate. While this process is simpler and does not require formal notice to creditors, the spouse must assume and pay any debts the decedent owed that are not discharged as a result of the decedent dying.
Why go through formal probate anyway?
Summary administration and collection by affidavit are easier and quicker processes than formal probate, but there is a risk that heirs will have to pay the debts of the deceased. To prevent this from being the case, the heir can request appointment as a limited personal representative for the purpose of giving formal notice to creditors. Doing so will allow that person to avoid paying any debts of the deceased that are not formally presented in response to the published notice.
Each of these processes requires its own set of documents to be filed with the Clerk of Court and still requires the person going through these processes to follow a number of rules when it comes to collecting and distributing the assets of the deceased. It is wise to consult with a qualified professional prior to taking advantage of summary administration or collection by affidavit.
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