The current situation with COVID-19 is particularly poignant for estate planning attorneys. Death is part of my professional life. I accept this and prefer to think that I help grieving families in their darkest days. Still, there is something particularly upsetting when a client passes away from this virus.
Perhaps it’s the sudden and quick decline of the infected person that makes it all the more devastating; there often isn’t much time for the families of an infected loved one to say goodbye when the medical caregivers have done all they can. I am quite sure that there are several families out there who have contacted attorneys like me for urgent help; many of those who passed from this virus without some sort of estate plan are likely to have left their loved ones without quick access to inheritable funds.
This can be a precarious situation for families with already strained bank accounts, loss of work or diminished (or no) earning power (e.g. when the decedent was the breadwinner).
In general, whether you have a Will or not, your estate (assets) have to distributed according to a court order that sanctions the Will or distribution according to Intestate laws. To obtain this court order, surviving dependents need to go through the Probate or Administration process, which can sometimes take months to complete.
Additional Suffering for The Grieving
Estate Planning is one of the pillars of a family’s long-term stability and peace-of-mind. I’ve written about this extensively. It’s still a point worth belaboring. For young families with minor children or adult offspring who are not yet financially independent, the immediate sobering reality is this: what money do they have to live on when the main or sole breadwinner passes away?
These are sobering questions. Can the surviving spouse or life partner pay the mortgage or rent? What if that person does not work, or cannot get work quickly? What about health insurance, school fees, car lease payments, food and sundries, transport and other necessities? How are monthly bills to be paid on time? And which are the financial institutions holding assets like life insurance and retirement accounts?
Estate plans help ensure that your assets (known collectively as your “estate”) are released quickly so that your family has – at the very least – financial stability and breathing room during an immensely difficult time. Most of us have assets – money in the bank, investments in brokerage accounts or our retirement accounts, jewelry etc.. But most of us also have debt – mortgage, credit card debt, student loans and other personal loans. When you pass on, the law requires that your assets be distributed according to your wishes within the rules of estate law, and that debts owed are paid in full.
Obviously, you would wish that your loved ones have all debts paid up, and enough funds to live on for several years from what you leave behind to them. Estate plans list assets, debt, and the relevant institutions that hold them, together with account information and other key documentation. They contain crucial information that can facilitate the quick release of inheritance assets to your loved ones.
However, if you’re disorganized about documenting what you have and what you owe, with no clear instructions as to what needs to be done for your assets to be distributed to your loved ones, then it’s highly likely that you’ll leave them scrambling for cash and liquidity when you pass on.
And if you’re a single parent, would your children’s legal guardian(s) be able to access funds to take care of your kids? Would they even know where to look and what to do? If you are a single person, but with dependent parents, what would their situation be should you pre-decease them suddenly?
Probate (there’s a Will) Vs. Administration (there’s no Will)
Even if you’ve made a Will, your “Executor” (the adult named in your Will who is tasked with carrying out the instructions in your Will) will have to go to court to get the Will sanctioned for execution/implementation. This is known as “Probate” – the court reviews the submitted Will and when satisfied that it has met all legal requirements, orders the distribution of the assets under the Will. No financial or asset-holding institution will release assets under the Will without the court's order.
There are, of course, situations where the process takes even longer – typically when a person dies “Intestate” i.e. without a Will. In intestate situations, your spouser/family member (or any adult who is a potential heir under the law) will have to petition the courts to decide what your estate is and how it is to be distributed. This is known as “Administration”.
For obvious reasons, Administration tends to take considerable time, since there is no Will to guide the court as to what is to be distributed to whom. Just locating assets, gathering information on them from the relevant financial institutions, and presenting them to the court can take much time and effort (we’re talking months here, not weeks or days). Once appointed, the “Administrator” will take on the fiduciary responsibilities of seeing things through to the end of the process where the proper distribution of assets takes place. As in Probate, an Administrator cannot simply contact financial institutions to release your assets to your heirs; a court order is required.
In short, whether you have a Will or die Intestate, your estate will have to be processed through Probate or Administration.
Non-Probate Assets - No Need To Go To Court For Beneficiary Designations
There are certain assets that don’t require any estate planning vehicle for distribution to take place. These assets can be immediately distributed if you’ve already designated beneficiaries (e.g. for life insurance) or share the asset account with your spouse or partner (e.g. bank accounts, stocks and other investments). The distribution for such assets operates outside the Probate & Administration court system; beneficiaries can access/receive funds directly from the companies that hold these assets for you, and typically within a relatively short time.
“Beneficiary Designations” are an excellent way to ensure that your dependents and heirs can avoid the time and effort involved in Probate and Administration. You can read more about them here.
Inheritance of assets governed by Beneficiary Designations are therefore often referred to as “non-probate” assets. If you haven’t made your designations, this is a good time to do so. It often takes very little paperwork and no more than a few minutes to designate beneficiaries for life insurance (including work-sponsored term life insurance) and investment or retirement accounts. Simply call your respective financial advisors for each asset. In fact, call them today if you can.
(Note: life insurance is still part of your estate, like all assets. Which means the death benefits are taxable unless you’ve made tax arrangements. In short, having Beneficiary Designations means you can avoid Probate & Administration, but it doesn’t mean you can avoid paying estate tax on the death benefit. I strongly suggest you talk to your financial advisers about this as I am not a licensed financial professional nor a tax attorney).
The Surrogate’s Court
In New York State, the court that has jurisdiction over Probate and Administration matters is known as the “Surrogate’s Court”. The term may strike some as archaic, but it makes sense for the simple reason that the court is there to ensure that when a person is no longer around, the court steps in to ensure that her property is properly distributed according to her wishes, statutory guidelines and current law. Every county has its own Surrogate’s Court, and your Executor or would-be Administrator would need to start proceedings in the county of your primary residence.
Probate & Administration – The Process
Again, when you die Intestate, someone who is a potential heir under Intestate law has to petition the Surrogate’s Court for your estate to be properly distributed via “Administration”.
Don’t be fooled by the word “Administration” – it’s not just submitting forms to the court and waiting for a court official to get back to you. The process and its legal requirements are quite onerous, involving a fair amount of legal paperwork, and considerable “wait time” to get a hearing date.
Certainly, your spouse or other appropriate petitioner can begin the process and follow through on their own. Navigating the court system, however, is not for the faint-hearted; legal experience and expertise definitely speed things up when getting a Court Order for the distribution of your assets. The same applies in the Probate process, which while a little less onerous (since there is a Will), can still be tricky in some cases.
To recap: the crucial difference between Probate (where there is a Will) and Administration (where there is no Will) is that distribution of your estate in the latter is governed by the court’s application of Intestate Laws of the state you officially reside in. These laws are largely statutory rules of distribution that the Court applies to your estate, with spouses and children at the top of the distribution list.
(Note: if you have children with your life partner but you are unmarried, this can present a real problem – unmarried partners are NOT provided for under Intestate laws. Also, second marriages can be subject to the divorce settlement from the first marriage, whereby part or all of the decedent's retirement or life insurance funds are to be left to the first spouse. This makes estate planning for unmarried or second-marriage couples all the more important, if not especially vital. You can read more about this here.)
The Probate and Administration processes in New York Surrogate’s Court share a number of main elements:
- The Executor (as named in the Will) files the Will (original) and a certified copy of the decedent's death certificate with the Probate petition and other supporting documents. Where there is no Will, the closest “distributee” (usually a person who stands to inherit under Intestate laws) can petition to be appointed Administrator of the estate, and must also furnish a certified copy of the death certificate with the Petition.
- The Surrogate’s Court where Probate or Administration papers are to be filed has to be in the county where the decedent maintained her primary residence.
- The Executor or Administrator must include the heirs ("distributees") in the Probate petition. Additionally, distributees must be served a "citation," which is a formal notice that gives the Surrogate’s Court jurisdiction to determine the rights of each beneficiary. A citation is also a means of informing heirs as to who is the Executor or Administraor. They can either sign a waiver and consent to the appointment of the Executor, or go to court to challenge the appointment. Much the same applies in the Administration process.
- A filing fee must be paid, and the amount depends on the size of the estate (statutory rules provide a sliding scale).
The forms for Probate and Administration require complete, and very detailed information. While not strictly in legalese, they can be confusing in some situations (e.g. when the decedent was domiciled in a foreign country but his family and assets are in New York State, or if the decedent was a single parent who had appointed a Legal Guardian for her minor children, or even a combination of both in some rare but very real cases).
Getting Around Probate & Administration – Living Trusts
Apart from Beneficiary Designations, you can ensure inheritance of assets without having to go to Surrogate’s Court – by using a Living Trust. I shan’t go into detail here about Living Trusts, as they are complex legal creatures unto themselves. For now, it’s worth noting that some people prefer to use Living Trusts instead of a Will as the latter is a matter of public record and – as explained above – can involve much time, legal fees and paperwork to get your estate distributed.
Procrastination – Your Loved Ones (Not You) Pay the Price
Whether you choose to have a Living Trust or Will or have only assets that can be passed to your loved ones via Beneficiary Designations, you should at least have one or more in place. Together, they will form an effective plan to ensure that your dependents and other loved ones don’t have to suffer a painful legal process trying to access your legacy to them.
Admittedly, your loved ones will eventually inherit your assets should you pass unexpectedly so long as they go through the relevant legal process in Surrogate’s Court. But why put them through the prolonged uncertainty and stress that comes with having made few or no preparations? An estate plan ensures that your family knows the assets you have, how to access it, and how to do so quickly and with a minimum of complication.
Having an estate plan -- even if it’s just a simple Will -- is an act of love and part of our adult responsibilities, especially when we have dependents. Estate planning is not about tempting fate or giving in to panic. It’s about planning for the worst and ensuring the best you can for those who rely on you. And if not now, then when?
Stay strong, stay safe, and be good to one another.
All my best to you and yours,