When It’s Time for Probate
Dear Renna,
My Mom and her partner of many years live in Rehoboth and are getting older. Recently I overheard friends talking about big headaches over “probating” their father’s estate. What exactly is probate? What does it involve?
Heather (with two moms)
Dear Heather:
It’s wise to think about what eventually lies ahead—here goes:
What is probate?
When a person dies (the “decedent”), she or he leaves behind debts (bills, taxes, mortgage, loans) and assets. A person’s Will might direct that property be sold, or property might have to be sold to pay debts of the estate. The probate process includes taking an inventory of all the decedent’s assets, paying debts, funeral and administrative expenses, and maybe federal or state death taxes. Eventually the remaining estate is distributed to beneficiaries. Simply put, probate is the way we deal with a person’s property and affairs that are still “open” after the person dies.
In Delaware, the estate must go through probate if the decedent has solely owned real property, had more than $30,000 in probate assets, or the estate is not sufficient to pay the obligations of the estate. If the decedent left a valid Will, it is probated, and the Executor appointed in the Will is sworn in. If the person dies without a valid Will (“intestate”), an administrator must be appointed for the estate. The person or persons entitled to seek appointment are designated by statute. The decedent’s spouse has the highest priority, but then other family is next-in-line, i.e., children, then parents, and then siblings. Remember, even if same sex spouses are legal some place else, Delaware does not recognize them. In fact, Delaware still has a fine for couples who say they are “married”!
What assets are probate assets?
Probate assets are the only assets controlled by a person’s Will. Personal property and real property that is titled in the decedent’s name alone are probate assets. Personal property includes anything that is not real property such as cars, boats, artwork, furniture, jewelry, clothing, bank and investment accounts, mutual funds, loans, securities, bonds, interests in partnerships and LLCs, and anything else that is not real property.
What assets are NOT probate assets?
Interests in jointly held property that are titled with the right of survivorship are not probate assets. Bank and investment accounts, IRAs, annuities, insurance, and employee benefits that are controlled by beneficiary designation forms are not probate assets. But if all the primary and contingent beneficiaries die before the owner or insured, then interests payable at death will be probate assets. For example, if your Mom designated her partner as her IRA beneficiary, but her partner dies first, and she didn’t name alternative beneficiaries, the IRA will be paid to your Mom’s estate.
Why is probate a big deal in Delaware?
The first issue is cost. While there is no “inheritance tax” in Delaware, there is a probate tax (called a “closing cost”) assessed at a flat 1.75% of the value of the probate assets, excluding most real property. If a decedent’s probate assets have a value of $500,000, then the closing costs would be $8,750. In Delaware, this expense can be avoided by creating Revocable Trusts (also called Living Trusts) and taking other steps to reduce assets included in the probate estate.
There is also the cost and time of probate administration. Delaware probate requires an Inventory and extremely detailed Accounts. The cost of complying can equal or exceed the closing costs. And because there is an eight-month creditor claim period in Delaware, it will probably take a least a year to finish the probate administration.
Finally, there is privacy. Once a probate administration is opened, all assets with their values, debts, and other obligations become a matter of public record, not to mention how much the beneficiaries will receive.
What’s most important for the LGBT community to consider?
If your Mom wants her partner to administer her estate, she needs a valid Will. In a Will, she can decide who will administer her estate.
It is extremely important for gay couples to plan how to own property. There are ways to title and own property to avoid probate if one partner dies, and still provide for the survivor. And joint property ownership is not necessarily the right fix. Joint ownership can cause problems with mortgages, realty transfer tax, and gift taxes. Then there can be adverse consequences if partners break up and have no written agreement. Every couple is different. And as I mentioned in my previous column, often joint ownership is not always be the best way to achieve a couple’s objectives.
Finally, your Moms may want to consider whether Revocable Trusts would make sense for them.
I hope this helps. Good luck!
Renna Van Oot, Esquire practices at the Old Capital Law Firm in New Castle, Delaware. www.oldcapitallaw.com.
This column is distributed with the understanding that the author, Old Capital Law Firm, and publisher are not rendering legal, accounting, or other professional advice or opinions on specific facts or matters, and accordingly, assume no liability whatsoever in connection with its use.