Probate
What is Probate?
Probate is a legal process involving the courts during which the Will of someone who has passed away (the "decedent") is administered. During the administration of the will, the court will review the Will to determine that it was properly prepared and executed (this is called admitting the Will to probate). After the Will has been admitted to probate, the court will appoint someone to be the personal representative of the estate (usually this person is named in the Will). The personal representative will be given letters of administration (sometimes called "letters testamentary"). The letters of administration give the personal representative the legal authority to take control of the decedent's assets. Once the personal representative has control over the decedent's assets, debts and taxes are paid and the decedent's property is then transferred to those named in the Will (the "beneficiaries").
What is a properly prepared and executed Will?
A properly prepared will is a valid legal document which accurately directs the decedent's wishes. Among other things, a properly prepared will should designate what happens to all of the decedent's property when he or she passes away. Additionally it will name a personal representative (sometimes called an executor), possibly name a guardian for the decedent's children, and state how taxes and expenses of the decedent's estate are going to be paid.
During execution of a Will, the document is signed. There are many specific requirements that must be met for a Will to be properly executed. An estate planning attorney will make sure that the Will execution is valid.
What if the decedent did not have a Will?
Someone who dies without a will is said to have died "intestate." If an individual dies intestate, the laws of intestacy govern how the probate property of the decedent is divided. Probate property is all property a person holds in his or her own name which cannot be disposed of in some other manner, such as through a trust, joint tenancy, a beneficiary designation or an account with a payable on death (POD) designation.
Does a probate estate always need to be opened to transfer probate property?
In the State of Indiana, if the net value of the probate assets (their value after subtracting liens and encumbrances) does not exceed $50,000, then a probate estate may not need to be opened with the court. In these cases, a "summary administration" procedure or an affidavit may be used to distribute the estate to the persons entitled to it. If there is real estate that needs to be sold, instead of transferred to heirs, then a probate estate will need to be opened with the court.
What legal steps need to be taken after someone dies?
If there is property which needs to be transferred through probate, there are a range of types of estate administration which are available in Indiana. On the simple end of the range, the property may be able to be transferred through an affidavit with no formal administration. On the other end of the spectrum, a supervised estate administration with probate court involvement may be required. If a decedent had a trust, no probate may be necessary, however, other steps such as retitling property or filing tax returns may be required. Consulting with an attorney can save time and money by helping to ensure the most appropriate manner of handling the settlement of the decedents affairs is chosen.
How long will it take to administer my loved one's estate?
If an estate has to be opened with the court, the probate process will last at least three months. During this time, creditors and other interested parties have an opportunity to file claims against the decedent’s estate. If an Indiana inheritance tax return is required, the probate process will typically require at least six to nine months to allow time for approval of the inheritance tax return by the Indiana Department of Revenue. If a federal estate tax return is required, the probate process may continue for more than one year before approval of the return is received from the Internal Revenue Service. A supervised estate may take longer to administer than an unsupervised estate. Additionally, if there is real estate to sell, waiting for someone to purchase the real estate may prolong the probate process.
What is the difference between supervised and unsupervised administration?
Unsupervised administration is Indiana's simplification of the probate process. Prior to unsupervised administrations, personal representatives were required to seek court approval for most actions they took on behalf of an estate. The result was a longer and more costly process to settle a decedent’s estate. However, during the unsupervised administration of an estate, the court typically is involved only in the appointment of the personal representative. The personal representative then proceeds with the inventorying of the estate, payments of creditors and taxes, and distribution of property without involvement with the court. At the end of the process, the personal representative must provide all beneficiaries with a written accounting of his or her actions during the course of the administration. If someone believes that the personal representative acted improperly they have a three month period, following conclusion of the administration, in which to file with the court an objection to the personal representative’s accounting. Unsupervised estate administration can be requested by an individual in his or her Will. If not requested in the Will, unsupervised administration is only possible if all of the beneficiaries sign a document consenting to the unsupervised administration. In estates with large numbers of beneficiaries or where there are conflicts among family members, getting the needed consents signed is not always possible.
What are some of the tax considerations related to my estate?
In Indiana, the two taxes of primary concern are the Federal Estate Tax and the Indiana Inheritance Tax.
- The Federal Estate Tax taxes the value of the property owned by the decedent at the time of his or her death. In 2013, after a taxable estate reaches $5.25 million, the excess is taxed with the maximum tax rate set at 40%. However, property passing to a surviving spouse or to a church or other charitable organization generally is deductible in determining the amount of the taxable estate. If an estate is likely to owe federal estate tax, there are several things that can be done, particularly for married couples to reduce and frequently eliminate the federal estate tax.
- The Indiana inheritance tax is a tax calculated separately on the value of the property that each individual inherits, rather than being calculated on the value of the entire estate. The tax rates are based on the closeness of the beneficiary’s relationship to the decedent, with those of more remote relationship being taxed at higher rates. Property passing to a spouse or charity usually passes tax-free. A parent, child or their spouse, stepchild or their spouse, or grandchild has a $250,000 exemption and pays tax on the excess of his or her inheritance at rates starting at 1% and maxing out at 10%. Brothers or sisters, nieces or nephews, and spouses of a child or of a deceased child receive a $500 inheritance tax exemption and pay inheritance tax at rates starting at 7% and going up to 15%. More distantly relations or friends of no relation receive no inheritance tax exemption and pay inheritance tax at rates starting at 10% and going up to 20%. The Indiana Legislature passed a law during the 2012 session that will gradually phase out the state’s inheritance tax by allowing a credit against the amount of taxes owed. The credit will be 10 percent of the taxes due in 2013 and will increase by 10 percent each year, reaching 90 percent in 2021, and 100 percent in 2022.
You should also know that for both federal estate tax and Indiana inheritance tax purposes, that the taxable estate includes more than the probate property. It also includes property held in trust, property owned jointly with the right of survivorship, annuities, and retirement plans. Thus, a decedent could have little or no probate estate, but his or her beneficiaries could still owe federal estate tax or Indiana inheritance tax.