I recently wrote a piece that discusses the probate administration process and explains why it’s necessary when someone dies. But an estate doesn’t need to be opened for every person who dies. This article examines those situations where a decedent’s property can be transferred to rightful beneficiaries without a probate proceeding.
In order to determine whether probate needs to be opened, the analysis boils down to examining what the person owned at the time of their death that needs to be conveyed to someone else. Assets fall into one of two basic classes:
- Real Estate. If the decedent owned real estate that did not automatically pass to someone else at death, and that real estate needs to be sold or transferred, probate is necessary. However, the transfer of real estate that automatically passes to someone else at death doesn’t require probate. Examples of these automatic transfers are if the deceased held ownership of the real estate in joint tenancy with survivors or if a beneficiary deed was in place prior to death.
But even if the decedent owned property that didn’t automatically transfer at death, interested parties should consider whether there’s actually a need to voluntarily transfer the property. For example, if the decedent’s debts exceed their assets, a strategic decision may be made to delay or forego probate. Or with the current state of the real estate market, if more is owed against the subject property than it is worth, it may not make financial sense to open probate to transfer an underwater property. In this case, a decision may be made to let the property go to foreclosure. An in-depth discussion of considerations surrounding this type of decision can be found in the article
Upside Down Homes in Insolvent Estates.
- Everything Else. If the decedent did not own real estate at their death that needs to be transferred, and if the total value of all other “probate assets” is less than $60,000, a probate may not be necessary. Probate assets are basically personal property that does not pass to someone else automatically at death, which means the assets have to be collected and distributed by someone. Typical probate assets include the following, when owned by the decedent alone, or if the decedent owns the property with someone else in a form other than joint tenancy:
- Checking and savings accounts;
- Investment accounts that do not have transfer-on-death (TOD) or payable-on-death (POD) designations; and
- Personal property, or for lack of a better description, the decedent’s “stuff.” Examples that fall into this category include items such as jewelry or artwork.
If probate assets total less than $60,000, and the decedent did not own real estate, beneficiaries of the deceased can collect the decedent’s property by using a form called a Collection of Personal Property Via Affidavit. In the Affidavit, the beneficiary attests that they are entitled to certain assets of the deceased, and therefore the holder of the property is directed to release the asset to the claimant. The policy behind this expedited collection method is to avoid more rigorous, time-consuming and costly court proceedings for relatively small estates. A beneficiary using the Affidavit must take care when collecting property though, as creditors must still be paid from the assets. Additionally, if other assets are discovered later, a probate administration may be necessary, in which case the beneficiary who received property pursuant to the Affidavit must account for the property to the personal representative of the estate.
In contrast to probate assets, “non-probate assets” pass automatically to someone else at death, without court involvement or the need for probate administration. Some typical examples of non-probate assets include:
- Assets held in accounts with TOD or POD designations – these could include bank accounts, investment accounts, pension plans, etc…;
- Property or accounts held in joint tenancy;
- Life insurance proceeds not payable to the decedent’s estate; and
- Property held in trust.
If the large majority of a decedent’s assets consist of non-probate property, there’s a chance a probate administration may not be necessary. This brings up a question we often encounter when preparing estate plans for clients: what can be done to plan to avoid probate? The very basic answer to that question is to make sure that the majority of the client’s property is held as non-probate assets, meaning it will pass to intended beneficiaries without need for estate administration. If most property passes via non-probate means, and any remaining probate property totals less than $60,000, that probate property can be collected and distributed via the Affidavit discussed above, eliminating the need for a probate administration.
However, even with the most detailed planning, probate proceedings aren’t always completely avoidable. Fortunately, Colorado’s probate system is relatively efficient when compared to many other states. Probate administration in some other states is extremely costly for even the smallest of estates, because attorneys and personal representatives receive a statutory percentage of the estate as compensation. Colorado does not provide for this automatic compensation, although personal representatives and their attorneys may receive reasonable compensation for their roles in administration. But in general, Colorado’s Probate Code is extremely progressive, allowing personal representatives to apply for appointment and act on behalf of estates with relatively little judicial interference, which makes probate in Colorado much quicker and less costly than in many other places.
Our firm assists clients through both the estate planning and administration processes. For those clients who have a goal of avoiding probate, we structure estate plans that utilize a variety of tools to pass the client’s assets automatically at death so an estate administration isn’t necessary. But if a probate administration is necessary, we routinely assist clients in collecting and distributing the decedent’s assets in accordance with Colorado law. Please contact me if you or your family would like our assistance with either creating an estate plan or administering a probate estate.