PROBATE INFORMATION GUIDE
©2009 Kellogg & Palzer, P.C. All rights reserved
This information guide is designed for clients of Kellogg & Palzer, P.C., to give an overview of the probate process and help explain the steps that an estate must go through in probate. If you have any questions in reviewing this guide, please feel free to contact us.
The process of administering a will through probate involves several key steps:
1. Opening the Estate (Admitting the will to probate)
2. Appointing a Personal Representative
3. Gathering of Assets-Preparation of the Inventory
4. Notifying and paying creditors
5. Determining and paying Inheritance, Estate and Income taxes
6. Distribution of assets and Closing the Estate
Nebraska has an Informal Probate Procedure which applies to the vast majority of probate proceedings. Rarely, if ever, will the client ever have to appear before the court in an informal probate. It is primarily a "paperwork" transaction, as explained in greater detail below.
To help our office in the administration of the Estate, we have prepared a Probate Information Form. Please
click here to get a copy of the form to complete.
1. Opening the estate (Admitting the will to probate) Our office will prepare several documents which will commence the Estate in the Probate Court. If there is a Last Will of the decedent, and it appears that there will not be a contest by any of the heirs, then we will file for an informal probate proceeding. If there is a Will contest, or other dispute over the validity of the Will, we may file a formal probate proceeding. These are unusual cases, so will not devote time to discussing these cases in this guide.
In an informal probate, an "in-person" court appearance is rarely required and the probate process is simply a matter of preparing and filing the necessary documents. The original Will must be filed with the Court. We will also need the names and address of direct relatives of the decedent (just children, parents, siblings, generally) as we must notify them of the probate proceedings.
If there is no Will, we will file an Intestate probate (intestate simply means "without a Will"). Again, we will need the names and address of direct relatives of the decedent to notify them of the intestate probate proceedings. In an intestate probate, the distribution of the assets will be according to rules of distribution set by Nebraska law.
2. Appointing a Personal Representative The Will should normally designate who is to be appointed as Personal Representative. If there is no Will, the surviving spouse has priority to be appointed, followed by children. If there are no children, surviving spouse or parents, the siblings have priority, then nieces and nephews. Among any group having equal priority, if only one is appointed, the others must waive their right to appointment.
The personal representative has a fiduciary duty to the heirs of the estate to administer the estate in a proper and efficient manner. The personal representative (also known as the "PR") must follow the Will (or the state intestate distribution rules when there is no Will) for all distributions. The Personal Representative has the power to administer the Estate, to sell and transfer property (if allowed under the Will), to make expenditures, pay taxes, and sign probate documents.
3. Gathering of Assets - Preparation of the Inventory The first financial duty of the personal representative is generally to establish an Estate checking account. For accurate record keeping, it is generally preferable to keep a separate Estate account, even if the PR had a joint account with the Decedent prior to death. The Estate will need to get a separate Tax Identification Number, and will need to keep track of interest income for purposes of filing the Estate Income Tax Return.
The PR must prepare a list of all assets owned by the Decedent (including jointly owned property, property which had a beneficiary designation (like IRA's, 401k's and life insurance) and property which was titled POD). Generally a signed inventory form is due within ninety days of appointment, but reasonable extensions are always granted. An inventory form will be provided to you at our initial meeting. We will need to list the fair market value of the asset on the date of death:
a. Checking, Savings, Retirement, Brokerage accounts, etc. -- you can request a statement from the financial institution showing the value on any specific day. If this is not available, we will use the monthly statement closest to the date of death.
b. Real Estate: Generally speaking, an appraisal will not be necessary for residential real estate. The court will generally accept the sale price if the property is sold to a third party or a reasonable amount over the tax assessed value. For farming or commercial property, an appraisal is generally required. If there is a mortgage, home equity loan, or other debt or lien, we will need to know the pay off balance as of the date of death.
c. Automobiles: If you provide us the make, model, year, mileage and condition, we can get a statement from Kelly's Blue Book or similar service, or you can get the value directly from Kelly's Blue Book at
www.kbb.com.
d. Life Insurance: We will need to include this ONLY if the beneficiary is the Estate of the Decedent. If the beneficiary is an individual (i.e. children or the surviving spouse) this is not included in the probate process, but MAY BE included for purposes of Federal Estate Tax (discussed later).
e. Annuities, IRA's, 401k's, etc.: We will need to know the gross amount paid to the beneficiary.
f. Jointly held property. Property that is held jointly, under a POD designation, or similar types of co-ownership will need to be listed. We will need the name and address of the co-owner, and will have to list the percent includible. Percent Includible means the percent of the decedent's contribution to the asset. If the asset was jointly owned, but the decedent paid for all of it, then it should be 100%. If the decedent and the co-owner each paid half, then we would show the whole value on the inventory, but then deduct the contribution.
g. Personal property: (clothing, appliances, personal effects, etc) The individual item need not be listed separately unless it has an independent value greater that $1,000.00. Otherwise, we can simply lump together all the personal property and give it an estimated total value. If there is an Estate Sale, we generally use the proceeds from the sale as the value of the sold personal property.
4. Notifying and paying creditors We are required to give notice to all creditors of the decedent. We do this by publication, but we must also provide actual notice to all known creditors. If there are any creditors (typically a credit card company, etc.) of which you are aware, please notify our office of the creditor name and address so we can send them notice. If you know the amount owed, this will also be helpful. If a notified creditor fails to file a claim within the published deadline (usually sixty days after the last publication), then the claim is barred, absent good cause for missing the deadline.
5. Determining and paying Inheritance, Estate and Income taxes There are four types of taxes that an estate could be subject to: Nebraska Inheritance Tax, Federal Estate Tax, Nebraska Estate Tax, and Federal and Estate Income tax.
Inheritance Tax: In Nebraska, the amount of inheritance tax differs depending on the relationship of the heir to the decedent. The law changed effective January 1, 2008. For undividuals who died January 1, 2008 or after, the rate of tax for direct relatives (children, grandchildren, parents, and siblings) it is 1% of the amount received over $40,000.00. For all other relatives (nieces, nephews, cousins) it is 13% of the amount received over $15,000.00. For non-relatives, it is 18% of the amount received over $10,000.00. For individuals who died before January 1, 2008, regardless of when the probate is filed, the rate of tax for direct relatives (children, grandchildren, parents, and siblings) it is 1% of the amount received over $10,000.00. For all other relatives (nieces, nephews, cousins) it is 3% to 6% of the amount received over $2,000.00. For non-relatives, it is 9% to 15% of the amount received over $500.00.
Once we have completed the inventory, and we have notice of any claims against the estate, and there are no outstanding challenges to the Will, we can proceed with the inheritance tax. To prepare the inheritance tax return, We will need to know all of the expenses of the Estate. This includes creditors, funeral expenses, legal fees, upkeep and maintenance of any property, and other miscellaneous expenses. The best means of providing this is to keep an accurate checking account ledger in the Estate account. We can provide Estate Account ledger sheets, but many of our clients use programs like Quicken or Microsoft Money to keep the account. With many banks offering internet banking, may PR's simply download the monthly statement and email it to our office.
Once the return is completed, we will send the PR the inheritance tax forms to review and sign. Unlike income and estate taxes, this return must be approved by the County Attorney in the county where the probate is filed, and then approved by the Judge assigned to the probate case. After the court approves the return, the tax is paid to the Treasurer of the county where the probate is filed (or, in some cases, in the county where the asset is located). Generally, the Estate pays the tax, not the individual, as most Wills state that the Estate shall be responsible for payment of any taxes due. In cases where the individual is liable, the Estate usually pays the tax out of that person's share of the Estate.
Nebraska law requires a hearing to determine the inheritance tax, UNLESS all the individuals subject to tax agree to waive the hearing. When the return is prepared, we will send waivers of the hearing to all the heirs, along with a copy of the inheritance tax return, asking them to sign and return the waivers. The inheritance tax return is to be filed, and the tax paid, within one year of the date of death or the tax amount will draw interest at a rate of 14% annually. Because of that, it is imperative that we receive all the information necessary to complete the inheritance tax well before the one year mark.
Estate Tax: Federal Estate Tax liability only applies to Estate that have a value of over one million dollars (which increases to 1.5 million for individuals dying in 2004 and 2005, 2 million in 2006 through 2008, 3.5 million in 2009, and is repealed completely in 2010, but returns to 1 million in 2011). This is based on the assets included in the inventory PLUS life insurance, even if it is payable to a beneficiary, not to the Estate. For most estates, this is not a factor, so it will not be discussed at any length here. If this applies to your estate, we will walk you through the process separately. The Federal Estate Tax Return must be filed nine months after the date of death. Nebraska Estate Tax is an additional tax that can affect Estates in this higher range.
Income Tax: If the Estate has earned income through interest, rent, capital gains, or by some other means, we will have to file an income tax return for the Estate. Income can also be "earned" by the Estate by a retirement plan distribution (IRA or 401k) to the Estate or by redeeming savings bonds. In many cases, the Estate doesn?t owe any income taxes because the deductible expenses exceed the income. Also, in some case the Estate itself does pay the income itself, but "distributes" it to the heirs to claim on their individual tax returns. This often times saves money, since the Estates are generally taxed at higher rates than individuals. Certain types of income can be included on the decedent's final income tax return, even if it was earned after the date of death. Our office can prepare all the necessary tax returns, including the final income tax returns for the decedent. We will need all W2's, 1099's or other tax forms that you receive for the decedent, as well as a copy of the previous years tax return. If the Estate has income, and we are going to distribute the income to the heirs, we will also need the social security numbers of all the heirs.
6. Distribution of assets and Closing the Estate Once all the taxes and creditors are paid, we can begin the process of closing the estate. Distribution will be dictated by the provisions of the Will, or in the event that there is no Will, by the provisions of Nebraska law on intestate distribution. We will discuss the individual distributions with you, and not in this general context, since each estate is different.
If there are substantial assets, and we are waiting on paying taxes, or remaining creditors, the Estate can make a partial distribution to the heirs as long as sufficient funds are retained to pay taxes, creditors, attorney fees and probate costs. Please check with us first before making a partial distribution. We know from experience how difficult it is to get money back when a PR makes too large of a partial distribution and insufficient funds remain to pay taxes and expenses.
All distributions should be accompanied by a Receipt form which will be filed with the court. Generally, we will prepare all the necessary closing and distribution papers at the same time, so that distribution and closing happen simultaneously, if possible. We will also have to prepare a final accounting, showing all the assets and funds that came into the Estate, expenses and taxes paid, and distributions made. An accounting form is attached to this guide for you to use. The final accounting can be waived by the heirs, so if you believe all the heirs would be willing to waive the requirement of the final accounting, please let us know. This could save the Estate considerable time and expense.
The closing documents are signed by the personal representative and filed with the court. Assuming that nothing unexpected arises, the estate is then considered closed. If something unexpected does arise (for example, an asset is located after the fact), in an informal probate the PR has residual power for one year after the closing of the Estate.
CONCLUSION We hope that this guide has been helpful and can answer some of your basic questions about the probate process. Obviously, this can not cover all contingencies, and since each Estate is different, your case may differ from the general type of case described here. Please let us know if you have any questions about your specific case.
©2009 Kellogg & Palzer, P.C. All rights reserved