Probate

Probate Terms

Dealing with the death of a loved one is hard enough, but then you have to try to understand the foreign language of “probate.” Hopefully, the following will help the uninitiated translate these commonly used terms in an Iowa decedent’s estate.

An “estate” is basically the property and financial affairs left by the deceased person, and the deceased person is commonly called the “decedent.”

A “testate estate” is an estate in which the deceased person had executed a valid will.

An “intestate estate” is an estate in which the deceased person did not have a valid will. This might be because the deceased person never had a will, had a will and revoked it, or had a will that is not valid.

A “will,” of course, is a written document that disposes of the deceased person’s property by naming the persons entitled to take. A will may do other things, such as nominate the “personal representative” responsible for settling the deceased person’s affairs, specify how that personal representative can act in relation to the property and the court, nominate a person to care for the decedent’s children, and direct how certain property is handled in trust or how various taxes are paid.

“Probate” refers to the process of authenticating a deceased person’s will. It is often used as the catch-all term for what I prefer to call “estate administration.” In Iowa, the true probate process is relatively quick and easy. Usually, the attorney for the estate presents an original will to the clerk of court. The will is accompanied either by an affidavit of the deceased person and the witnesses showing that the will was properly executed or by the posthumous confirmation of the witnesses that the will was properly executed. The clerk of court or a district court judge looks these over and, in the absence of something terribly unusual, orders the estate opened and an executor appointed. These are, of course, subject to challenge if, for example, a later will is discovered.

“Estate administration” is the process of settling the affairs of a deceased person. This term is a better description for the process than “probate” as it describes the process that takes place whether the person died with a will or without. Estate administration is basically the winding down of the decedent’s financial affairs. This usually involves collecting the decedent’s property, paying the decedent’s debts and taxes, and distributing the property to the persons entitled to it.

“Personal representative” is the catch-all name for the party responsible for the estate administration. The personal representative is either a person or a bank with a trust department. There is a preference for an Iowa resident personal representative, but the estate’s attorney can usually find ways to have otherwise qualified non-residents serve. The personal representative is also a “court officer” who must swear an oath to execute the laws of the state in settling the decedent’s affairs and make a proper accounting.

In a testate estate, this the personal representative is more often called the “executor.” In an intestate estate, the personal representative is usually called the “administrator.”

A personal representative is sometimes also referred to as a “fiduciary.” That term describes a person who undertakes duties for and is responsible to others. The term fiduciary is often used to emphasize the higher responsibility of the personal representative and to distinguish this responsibility from other (particularly self) interests.

In Iowa, when the court orders the appointment of the personal representative, the clerk of court then issues to that person “letters of appointment,” which is the personal representative’s proof of authority. When dealing with companies in other states, we find that these are referred to by a variety of different terms. One generic description we often see is “certificate of official character.” One should note that whenever someone demands a “certificate” or a “certified copy” of one of these documents, the requesting party is looking for letters of appointment with the “certificate” of court personnel recently signed and dated and bearing the seal of the court to show that the personal representative is still in office and authorized to act.

There are a host of terms to describe the people entitled to the decedent’s property. The term “heir” is typically reserved for use in intestate estates, and it refers to the people identified by law to receive the decedent’s property. A “beneficiary,” on the other hand, is a person identified in a will to receive the decedent’s property. There may be “specific” gifts of a certain amount of money or property identified and paid out first. The “residuary” or “residue” is what is left over after specific gifts, debts, taxes, and expenses are paid. So, a “residuary beneficiary” is one of the people entitled to the residue. Occasionally, one still hears the terms “devisee,” which refers to a person entitled under a will to receive real property (land), or “legatee,” which is a person entitled to personal property (anything but land).

Why Probate?

“Will we need probate” is a question that comes up a lot. The purpose of estate administration (whether a court is involved or not) breaks down into three main objects and phases:

  • Collecting the decedent’s property (and making the appropriate reports to the court, taxing authorities and beneficiaries (or statutory heirs));
  • Paying the decedent’s debts and state and federal income taxes and any estate, generation-skipping, or inheritance taxes owed; and
  • Distributing the net balance of the decedent’s property to the intended beneficiaries (or the statutory heirs).

In other words, with virtually all decedents, someone needs to clean up the property and finances of the decedent. However, administering a decedent’s estate only part of the time requires probate court administration. What’s the difference? Quite frankly, the difference mainly lies in (a) the nature of the decedent’s property and (b) how the decedent owned or held the property.

There are certain ways of owning property that will almost always require that there be a court-supervised estate administration, and there are ways of owning property that usually will not require estate administration. Again, why? First the abstract answer: The integrity of our legal system of property ownership largely depends upon demonstrating the proper authority for collecting a decedent’s property and getting it to the right place. Without these rules, to put it somewhat immoderately, we simply have the rule of the strongest vultures.

A few examples will illustrate how the nature and the manner of holding property affect when and how court administration comes into play and, hopefully, make the “why” more concrete:

  • If the decedent was the sole owner of stock in a publicly traded company (whether it is Google or ABC Widgets, Inc.), the shares need to be liquidated or transferred in kind to the beneficiaries. The company whose stock the decedent owned and its transfer agent obviously are not in business to decide who has the power to sell or reregister the stock or who gets the stock from the decedent’s estate. They want good documented authority of a person authorized to act for the decedent, and that comes in the form of a court-certified document (in Iowa called “Letters of Appointment”) that shows who has that power.
  • If the decedent owned shares in a mom-and-pop construction company where there are two or three local owners and everyone knows the decedent, the secretary of the company may not require much proof of who inherits the decedent’s shares. It may be enough that the rightful beneficiaries or heirs provide a copy of the will or trust instrument and agree to indemnify the company against liability for making a transfer.
  • If the decedent was the sole owner of an interest in land, the marketable title rules in Iowa dictate that an interest in land be conveyed by a personal representative. You could take a deed to that house you really like from any Tom, Dick, or Harry you might meet on the street, but how do you know you have the right to move in and occupy it and that someone else won’t come along and put you out? In most cases, getting a deed from that court-appointed personal representative is the answer either because the will specifically empowered the personal representative to sell the property or because the court actually approved the transaction.
  • If the decedent owned an interest in land as a “joint tenant with rights of survivorship,” the law dictates that the remaining joint tenant receives the whole property interest, and no estate administration would be necessary to transfer the decedent’s interest in the land.
  • If the decedent was the sole owner of stock in a publicly traded company held in a brokerage account that had a “pay on death” beneficiary named, the law again dictates that the beneficiary designation be honored and the whole property interest transferred to the beneficiary. The company managing the asset may have certain proof requirements (such as a death certificate) and new account forms, but no personal representative should be necessary.

With very small estates ($25,000 with no real estate), Iowa law also has a process for transferring assets by an affidavit. Iowa Code § 633.536 allows certain persons to supply certain information to the property holder. If the proper proof and information is supplied, the property holder is required to transfer the property and is protected from liability.

Milestones in the Probate Process

This section sets out in some detail the actual steps in administering a typical decedent’s estate. Generally speaking, in a court-supervised estate administration, things run something like this:

  1. Some responsible person locates the original will and makes an appointment with the family attorney to begin the process.
  2. The attorney, often having some knowledge of the decedent’s affairs and the situation, will prepare several documents to start the estate—a petition, court officer oath, designation of attorneys, confidential information submittal, order admitting will to probate, application for taxpayer number.
  3. There is usually a conference among the attorney, executor, and/or interested family members to gather basic financial information, original will, sign documents. If the attorney did not have enough information to have the documents prepared, the attorney would adjourn the meeting, prepare the documents, and arrange with the necessary parties to get the documents signed. (The idea that there is a “reading of the will” is a mostly an invention of television and movies.)
  4. The attorney files the original will and court documents mentioned above and seeks an order appointing the executor and admitting the will to probate. If the executor is not a resident of the state, this requires a judge’s review and approval, and the judge will order either the attorney or the clerk to serve as a “resident agent for service of process.” If there is no will, this step also includes getting a bond for the administrator set or waived.
  5. The attorney applies for a taxpayer identification number for the estate.
  6. The attorney arranges for publication of notice of estate administration in the newspaper.
  7. The attorney electronically notifies Iowa Estate Recovery, which is charged with recovering any debt owed the state for Medicaid payments.
  8. The attorney arranges for mailing of notice to the spouse, heirs, beneficiaries, and certain creditors.
  9. If there is a surviving spouse and/or children, the attorney will prepare a notice concerning support payments.
  10. The executor should be collecting, or at least identifying, the decedent’s property.
  11. The executor should be notifying income payers of the estate’s taxpayer number.
  12. The attorney and/or executor need to collect information on the date of death value of the decedent’s assets and liabilities. It should be noted that this can sometimes be a long and difficult process.
  13. Within 90 days of appointment, the attorney will prepare and file a report and inventory of the estimated date-of-death value of the decedent’s assets.
  14. The gross value of the decedent’s assets sets the statutory compensation available to the attorney and executor, and the attorney will prepare the compensation application, affidavits, and a proposed order allowing compensation to accompany the inventory. Often there will a waiver of compensation at this point because the executor is frequently a residuary beneficiary.
  15. Four months following the second publication of the notice of probate in the newspaper, the period for filing claims against the estate and for challenging the will itself ends. At this time, the statutory liability imposed on an executor for distributions also ends. At this point, there begins the possibility for making distributions.
  16. Within nine months of death, the executor must file the federal estate tax return and the Iowa estate or inheritance tax returns, if any such tax returns are due.
  17. The executor collects the decedent’s personal income tax information, and the attorney or another tax preparer will prepare and file the decedent’s final personal income tax return. (Death and taxes… Whether you die on January 1 or December 31, April 15 always rolls around.)
  18. Within 15½ months of death, fiduciary income tax return is due. This is typically the last thing that gets done in the estate administration.
  19. Often, around the time of preparing the fiduciary income tax return, the attorney will prepare a final report. With the executor’s assistance, the beneficiaries receive a formal or informal accounting with the final report.
  20. It is normal, at this point, for the executor, in consultation with the estate’s attorney to make distributions and to ask the beneficiaries to give a receipt for the distributions and a waiver of a hearing on the final report.
  21. When the Department of Revenue gets around to it, it will review the decedent’s personal income tax and the fiduciary income tax returns. If the decedent and the decedent’s estate are all paid up and there are no issues, the Department of Revenue will issue an “Income Tax Certificate of Acquittance.” With this magical document in hand and having filed everything else with the probate court, the estate can be closed.
  22. If the beneficiaries have provided “Receipts and Waivers,” the attorney files these with the probate court with the final report and acquittance. A “Probate Referee” then reviews the court file and prepares a report indicating whether the matters required by statute have been completed.
  23. If the beneficiaries have not provided a waiver of a hearing on the final report, the attorney will ask the court to set a date and time for a hearing. The interested parties will then be notified. The final report typically would have a plan of final distribution. Interested parties could object and appear in Probate Court to ask for a ruling on the particular objection.
  24. If the Probate Referee’s report is in good order and if waivers have been filed, the attorney can put the file in the hands of the presiding judge along with a proposed order for discharge of the executor.
  25. After reviewing the file and settling any disputes if there has been a hearing, the Court will issue an order discharging the executor, which closes the estate.

Again, this is a general outline. Decedent’s estates vary dramatically in the scope of work and the time involved. Deadlines and timelines frequently are adjusted under the unique circumstances of each estate. There are also numerous matters that are not addressed here, e.g., will contests, claims against the estate, beneficiary disputes, insolvent estates, wrongful death claims, and dealing with “non-probate” property.

Estate administration can seem like a bit of a plodding process. Sometimes, there is the perception that “if I can’t see you doing something, it must not be happening,” but like many other legal matters, an estate administration has many moving parts that not everyone sees. If the tree falls and no one is there to see it, yes, it does make a sound — but unless you are tuned in, its fall may be imperceptible. Moreover, there is not going to be a tree falling every second of the day. Hopefully, setting out the nuts and bolts of what happens during administration of the decedent’s estate will aid understanding about parts of the process that occur both under the bright spotlight and behind the scenes.