We talk a lot about probate in our office, both in helping families with estate planning and in advising families after a parent or other relative passes away.
When a person passes away, the first question is often whether a probate is necessary. To answer that question, we need to understand some background on how property transfers at death.
Generally, there are four ways property can pass at death. Those ways are joint ownership, beneficiary designation, through a trust, and through probate. To understand whether a probate is necessary in a particular situation, we need to know what property is set to transfer which way.
JOINTLY Owned PROPERTY
The first type of property that may be in a decedent’s estate is property held jointly with another person with rights of survivorship. A common example of this is real estate held with a spouse as “survivorship marital property.” Often, spouses also have joint bank accounts and investment accounts.
When a decedent holds property jointly with another person, the decedent’s interest ends at death, leaving the surviving owner as the sole owner of the property. This happens without any probate process.
Not all property with more than one owner is held in a way that creates a survivorship right. In particular, real estate can also be held as “tenants in common”, which means that there are multiple owners but no right of survivorship if one owner dies. To determine whether a property will go through probate it must be determined how it is owned.
PROPERTY WITH A BENEFICIARY DESIGNATION
The second type of property that might be in a decedent’s estate is property with a designated beneficiary. A beneficiary designation is created when the owner (now decedent) fills out a beneficiary form and provides it to the company managing the account. So, for example, a person may set up an IRA account with Fidelity, list their three children on a form provided by Fidelity (paper or online) and submit the form to Fidelity.
Beneficiary designation property is transferred directly by the company managing the account to the named beneficiaries. So, in the example above, the decedent’s children will fill out a death claim form and provide it to Fidelity along with a death certificate. Fidelity will then transfer the funds to the three children who are named beneficiaries. This will all happen between the children and Fidelity, and no probate is necessary.
TRUST PROPERTY
The third type of property that might be part of a decedent’s estate is property that flows through a trust, typically a “revocable” or “living” trust. As part of the estate planning process, people who use a trust also should “fund” the trust. This means updating the titling or beneficiaries on their property so that the property flows through the trust at death. In some cases, property will be titled in the trust. (So, for example, a deed might list the decedent’s trust, rather than the decedent, as owner.) Or, the trust might be the beneficiary of an account.
Property flowing through a trust does not go through probate. However, the trustee does have a variety of legal responsibilities, including a legal responsibility to pay the decedent’s bills and costs of administration, a legal responsibility to pay the funds to the beneficiaries according to the trust document, and a legal responsibility to account to the beneficiaries for the funds flowing through the trust. In some ways, this is similar to the legal responsibilities of personal representatives, except that the process happens outside of court. Our office is happy to assist in this process.
ALL OTHER PROPERTY
All property of the decedent that does not fit into one of the other categories above is “property subject to administration,” or property that might need to go through probate.
The rule for property subject to administration in Wisconsin is that if the total value of property in the category is less than $50,000, the property can be transferred without probate using a process called transfer by affidavit. If the total value of the estate is more than $50,000, the property must be settled through probate.
Do you need help settling an estate? Call our office to get started with a no-obligation initial consultation.