What is Probate?
Probate is the legal process used to transfer assets after the death of a loved one to his or her heirs. All wills and intestate estates must be probated, but the degrees of court involvement and complexity depend on several factors such as the size and complexity of the estate, the process can be short and inexpensive or it can be more complicated and costly. An estate with a will is referred to as a testate estate and an estate without a will is referred to as an intestate estate.
All wills and intestate estates in the State of Colorado must be probated, a judge must approve actions taken by the personal representative such as distributing assets, and handling disputes over a will.
Whether or not your heirs will have to go through probate to transfer title to your assets depends on how your assets were owned or titled when you died. Depending on how your assets are owned, the estate may be able to avoid the probate process because the will or laws regarding intestacy (an estate without a will) may not control the distribution of some or all of your assets.
Probate v. Non-Probate Assets
There are certain types of assets that are not governed or distributed per the terms of a will. Only assets that were owned by you in your individual name (and that do not have a beneficiary designation) are controlled by the will. Assets that are owned in joint tenancy, such as real property or a bank account, or assets that have a beneficiary designation like a life insurance policy or IRA, pass to the beneficiaries by operation of law, and are not subject to the provisions in the will or the probate process.
What is the probate process?
Probate assets are generally administered in one of three ways:
- Completing an Affidavit for Collection of Personal Property if the total probate estate assets are less than $68,000 and there is no real estate.
- Filing an informal probate procedure.
- Filing a formal probate procedure.
If using an Affidavit for Collection of Personal Property, the affiant goes to the institution or individual holding the decedent’s asset, presents the affidavit and typically a copy of the death certificate and collects the asset. The affiant then distributes the asset to those entitled to it, whether per the terms of the decedent’s will or the intestacy laws. This form must be signed before a notary public.
In both informal and formal probate procedure (knowing the differences is important!), the court appoints a personal representative (executor) or special administrator who is given the authority to step into the decedent’s shoes and wrap up their business affairs and distribute their assets. The personal representative may be supervised by the court or conduct the administration without supervision, but is considered a fiduciary for purposes of dealing with the decedent’s assets.
Colorado requires that a personal representative notify (by publication in a local newspaper or by mail) any possible and known creditors of the decedent, and to pay legitimate claims. During the creditors’ period, the personal representative will likely deal with valuing, consolidating, and/or liquidating the estate’s assets. After the creditors’ period is over, the personal representative may make distributions to creditors, devises, and/or heirs. A probate case can close once all of the assets are transferred out of the decedent’s name, all legitimate claims are satisfied, all devisees’ and/or heirs’ interests are satisfied, and applicable tax returns are filed and paid.
What are the responsibilities of the personal representative?
Most people know that a personal representative of an estate has certain duties and responsibilities, but until named as a personal representative, they might not understand their exact role.
A personal representative has many duties, rights, and responsibilities, including the ability to open and maintain an estate bank account, to sell, transfer, or encumber real property, to sell and/or transfer assets, to consolidate bank accounts, and to deal with creditors and also a fiduciary duty to properly administer the estate on the behalf of heirs and other interested parties, including creditors. A personal representative’s specific duties include:
1. Acting impartial in regards to all parties to the estate.
2. Administering the estate with care and prudence.
3. Putting the interests of the estate in front of the personal representative’s own interests.
4. Being loyal and treat each party the same.
Once you have been appointed personal representative of an estate, Colorado law requires that you undertake the following including, but not limited to:
5. Identifying, preserving and collecting the decedent’s probate assets.
6. Determining and paying decedent’s lawful creditors, including decedent’s tax liabilities and final expenses.
7. Distributing the decedent’s estate according to decedent’s will if one exists, otherwise according to the applicable laws of intestate succession.
8. Sending information of your appointment to the devisees and heirs within 30 days of your appointment.
9. Publishing a notice to creditors in a newspaper with county wide circulation in the county of decedent’s residence for three consecutive weeks. Only certain publications are allowed, so it is important to review the newspaper circulation and timing.
10. Valuing and preparing an inventory of decedent’s probate assets within 3 months of your appointment. This includes researching titling of assets and preparing date-of-death values, managing the estate assets until the court approves the closing of the estate, keeping accurate records of the estate’s transactions, and making distributions to creditors or heirs.
11. Preparing an accounting of receipts and expenditures pertaining to decedent’s estate, including your expenses as personal representative, you are entitled to reasonable compensation for working as the personal representative.
12. Preparing and filing the proper required documents to close the estate.
You may be appointed to share the responsibilities with someone else. Some people appoint two or more personal representatives (called co-personal representatives) to oversee an estate in their will. Sometimes they have concerns about a person's ability to administer an estate or want to include two or more of their children or family members in the role. A personal representative is often related to the deceased, but this is not required. Some people choose a friend or other representative to be the personal representative, knowing the role might be difficult or time consuming for a relative to fulfill.
A personal representative is entitled to reasonable compensation for their services, even if they hire an attorney to help them through the probate process. Whether or not the personal representative elects to take a fee, he or she should keep track of the time they spend working on the administration of the estate.
Probate Costs and Expenses of Administration
Probate can be a costly, time-consuming, and complicated procedure. It may take from 6 months up to more than a year (for more complex cases). The court and publication costs start from about $350 and above. The attorney’s fee can range from $2,000 to much more, depending on the estate. Additionally, the personal representative is entitled to a statutory fee based on the value of the estate administered. A Probate attorney is usually necessary for identifying what type of probate is necessary, and the scope of the attorney’s involvement will depend on the complexity of the estate. Even the most well-planned estates and well-written wills' have costs associated with administration, including court fees, attorney fees, and the payment of the decedent’s final expenses and legitimate debts. However, on the plus side, there are some legal fees for estate planning which are tax-deductible and worth reviewing where you can make a saving.
Probate attorney Nicole J. Mcgann charges an hourly fee, the overall cost is based on the complexity and the difficulty of the case.
Avoiding Probate
One way to avoid this process is by doing estate planning. Here are a few steps you can take to that effect:
- Give Away Your Entire Estate
When you give away your estate, you also forfeit control over it during your lifetime and after death. However, if you don’t own a property you may not have to pay estate taxes or be reached by your creditors. This is a risky option but still effective to avoid probate.
- Joint Tenancy With Right of Survivorship
You can avoid probate on the death of the first joint tenant, as the property automatically passes on to the remaining tenant. Nevertheless, if both tenants die at the same time, the estate passes through probate.
- List Pay-On-Death Beneficiaries
Probably, the easiest method of distribution is to designate an account or investment to pay out to a named beneficiary after your death. You can also create a beneficiary deed to pass real estate in a similar manner. The real estate becomes the property of the named beneficiary after the owner’s death.
- Contractual Beneficiaries
This is commonly used with life insurance; the same principles apply as with the pay-on-death method. There are no restrictions on the distribution, and again the estate may be subject to probate after the beneficiary dies.
- Living Trust
With a living trust, you transfer all your titled assets to a named beneficiary in the trust. You can name yourself the trustee and also appoint a successor trustee in case of death or incapacity. You can put any restrictions you wish on the use and distribution of your estate.
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