Probate is a legal process conducted in the probate court to settle the financial affairs of a deceased person. Probate administration includes the transfer of ownership of assets from a deceased person (their "estate") to the deceased person's heirs. During the probate administration process, the heirs of the deceased person are identified. If there is a Last Will and Testament, it is validated. The assets of the estate are inventoried and all debts, creditor claims, and taxes are paid. Then, the remaining assets that are controlled by the Will are distributed to the named beneficiaries. If there is no Will, the remaining assets are distributed to individuals as determined to be the heirs of the estate according to the State of Michigan's intestacy law.
The probate process is generally administered by a Personal Representative nominated in the Will or, if there is no Will, the person appointed as Personal Representative by the court. Probate can take anyway from five months to a number of years to be completed, depending on each estate's varying circumstances. For estates of $58,000 or less, there are some shorter probate proceedings that can be used to expedite settling a small estate.
The emotional trauma brought on by the death of a close family member often is accompanied by bewilderment about the financial and legal steps the survivors must take. The spouse who passed away may have handled all of the couple's finances. Or perhaps an adult child must begin taking care of probating an estate about which he or she knows little. This task may come on top of commitments to family and work that cannot be set aside. Finally, the estate itself may be in disarray or scattered among many accounts, which is not unusual with a generation that saw banks collapse during the Great Depression.
Below are some steps the surviving family members may consider taking. These responsibilities ultimately fall on whoever was appointed Personal Representative in the deceased family member's Last Will and Testament. Matters can be a bit more complicated in the absence of a Will, because it may not be clear who has the responsibility of carrying out these steps.
First, secure the tangible property. This means anything you can touch, such as silverware, dishes, furniture, or artwork. You may need to determine accurate values of each piece of property, which may require appraisals, and then distribute the property as the deceased directed. If property is passed around to family members before you have the opportunity to take an inventory, this will become a difficult, if not impossible, task.
Bills need to continue to be paid after someone passes away. Social Security should be notified within a month of death.
When you're ready, meet with a Michigan probate attorney to review the steps necessary to settle the deceased person's estate. Bring as much information as possible about finances, taxes and debts. Don't worry about putting the papers in order first; the lawyer will have experience in organizing and understanding confusing financial statements.
The exact rules of estate administration differ from state to state. In general, they include the following steps:
- Filing the Last Will and Testament and an application at the probate court in order to be appointed Personal Representative. In the absence of a Will, heirs must apply to the court to be appointed Personal Representative of the estate and for the court to determine who the heirs are.
- Marshaling, or collecting, the assets. This means that you have to find out everything the deceased owned. You need to file a list, known as an "inventory," with the probate court and send it to the other people whom the law deems interested parties to the estate. It's generally best to consolidate all the estate funds to the extent possible. Bills and bequests should be paid from a single checking account, either one you establish or one set up by your attorney, so that you can keep track of all expenditures. However, before consolidating assets, consult with a probate attorney to make sure there will not be any negative tax or other consequences.
- Paying bills and taxes. If an estate tax return is needed, it must be filed within nine months of the date of death. If you miss this deadline and the estate is taxable, severe penalties and interest may apply. If you do not have all the information available in time, you can file for an extension and pay your best estimate of the tax due.
- Filing tax returns. You must also file a final income tax return for the decedent and, if the estate holds any assets and earns interest or dividends, an income tax return for the estate. If the estate does earn income during the administration process, it will have to obtain its own tax identification number in order to keep track of such earnings.
- Distributing property to the heirs and devisees. Generally, Personal Representatives do not pay out all of the estate assets until the period runs out for creditors to make claims, which is 5 months after a notice to creditors is published in a legal newspaper. But once the Personal Representative understands the estate and the likely claims, he or she can distribute some assets, retaining a reserve for unanticipated claims and the costs of closing out the estate. Be aware that the Personal Representative is personally liable if the estate is distributed before paying the claims or if inadequate funds are kept to pay the claims. Consult with your attorney before making distributions.
- Filing a final account. The Personal Representative must file an account with the probate court listing any income to the estate since the date of death and all expenses and estate distributions. Once the final account is approved by the other interested parties to the estate, the Personal Representative can distribute whatever is left in the closing reserve, and finish his or her work.
Some of these steps can be eliminated by avoiding probate through joint ownership or trusts. But whoever is left in charge still has to pay all debts, file tax returns, and distribute the property to the rightful heirs. You can make it easier for your heirs by keeping good records of your assets and liabilities. This will shorten the process and reduce the legal bill.
Andrew Byers provides full representation of fiduciaries administering estates. The law has many technical requirements in administering an estate, and there can be negative ramifications if the probate laws and procedures are not followed. As such, before you start settling an estate, meet with attorney.