2 Certified Specialist in Estate Planning & Probate Law Angela M. Kirby, J.D., C.P.A.Certified Specialist in Estate Planning & Probate LawRogers Townsend & Thomas, PC220 Executive Center Drive, Winthrop BuildingColumbia, SC 29210(803)
3 What is Probate?Probate is a court-supervised process to accomplish the transfer of property from a Decedent to the Decedent's beneficiaries as identified in the Decedent's Will or by the laws of intestacy if there is no Will. The Personal Representative (PR) is appointed by the Probate Court to handle the administration of the estate. The PR is a fiduciary with responsibilities to the Probate Court, the beneficiaries, and the creditors of the estate.
4 Is Probate Really Necessary? In order to determine if Probate is Necessary, you must Gather Information about the Decedent, the Decedent’s Heirs and the Decedent’s Assets.See Tips for Gathering Information on Pages 278 to 280 and the Items Needed at the Initial Meeting on Page 297
5 A Family Tree is Critical to the Process Don’t be Afraid to Ask Questions: How many times was Decedent married? Do you have a copy of the divorce decree? Do you have a marriage license? How can you prove that you are the common law spouse? Have any children been born out of wedlock? Have any children been adopted? Have any children been taken care of by Decedent but not legally adopted? Request copies of the birth certificates, marriage license or divorce decrees if necessary. TIP: See Page 277 for other factors that may reduce an intestate heir’s share!
6 See SC Code of Laws Sections 62-2-102 and 62-2-103 IF NO WILL then you look to the laws of INTESTACY to control the DISTRIBUTION of probate assets:Married w/ no children: all to spouseMarried with children: one-half to spouse and one-half to childrenSingle w/ children only: all to childrenSingle w/ no children: all to parentsIf no parents then all to siblingsIf no siblings then all to nieces and nephewsIf no nieces and nephews all to grandparents (maternal and paternal)If no grandparents then all to aunts and uncles (maternal and paternal)If no aunts and uncles then all to cousins (maternal and paternal)**If no blood heirs then stepchildren and if no stepchildren then the StateSee SC Code of Laws Sections and
7 If There is No Will At All. . . Then the Administration of the estate is controlled by state law starting with the fact that the State selects the heirs even if the Decedent never ver met them!All heirs inherit a pro-rata share of everything unless they can agree otherwise and submit a private agreement to the Court for approval – and this sometimes leads to fighting over who gets whatA Minor child’s share is monitored by a Court appointed Conservator and is distributed at age 18The PR may have to be Bonded and they will have no Authority to Sell Real Estate without a Petition and no authority to sell personal property valued over $5,000All heirs may have to pay a pro-rata share of estate taxes if applicable
8 Non-Probate Assets vs. Probate Assets Non-Probate Assets are assets that will transfer automatically at death to a new owner by operation of law because of the way they are titled or by virtue of a beneficiary designation.Probate Assets are the assets that are in the Decedent’s name as of death and do not transfer upon death without the appointment of a Personal Representative. The distribution of probate assets will be either pursuant to the Will or the laws of intestacy.
9 Examples of Non-Probate Transfers Joint Property titled as “Joint tenancy with right of survivorship” (bank accounts, brokerage accounts, cars) BEWARE: Dig a little deeper in determining how the bank accounts became JTROS – were they created by Decedent or a POA of the DecedentAssets passing by operation of law with beneficiary designations (such as life insurance, IRAs, pension plan benefits, etc.)Payable-on-death accountsReal Property with the magic language “with right of survivorship”Funded Trusts
10 Only Probate Assets are Controlled by the Will Examples of Probate Assets Include:*Real Estate titled solely in the Decedent’s name or titled as Tenants in Common (**Another Common Misconception and unique to SC- we do not recognize Tenancy by the Entirety – which in other states is an automatic transfer at death between husbands and wives owning real estate together)*Stocks or Brokerage Accounts solely in the Decedent’s name or titled as Tenants in Common*Cash accounts solely in the Decedent’s name (Most joint accounts are Joint Tenants with Right Of Survivorship)*Insurance or Annuities payable to the Estate*Personal Effects (cars, boats, etc) in the Decedent’s name
11 Which Probate Court Do I File My Petition With in SC? Typically, the County where the Decedent was domiciled or where the Decedent owned real property.TIP: If the County or State listed on the death certificate differs from the County where you are filing the Petition to open Probate then file an Affidavit of Domicile
12 Small Estate Administration Assets less than $10,000 and NO Real EstateMust wait 30 days after date of deathNo Personal Representative is appointedCannot proceed if creditor files a claim at the CourtApplicant must typically provide proof of a paid funeral bill(More information can be found at Page 278)
13 Finding, Reading, and Interpreting the Estate Planning Documents * Original Last Will and Testament and all Codicils* Revocable Trust Agreements and all Amendments* Memorandum for Personal and Household EffectsLocating the Will: Safe deposit box; fireproof safe at the home or office; home office or work office; check with family attorney or drafting attorney if a Copy can be found; Inquire of Trust Departments, CPA, Insurance Agents, Financial Advisors, Brokers, Relatives; or Advertise in local publications or Bar publications.
14 Finding the Estate Planning Documents Practical Tip: If the original Will cannot be located, you may want to consider filing a Copy of the Will and utilizing a Private Agreement but it must be executed by all of the Testate and Intestate Heirs.This topic is more fully discussed under Private Agreements on Page 291 and SC Code of Laws Section
15 Reading and Interpreting the Estate Planning Documents It is your responsibility to read these documents and to fully understand all of the provisions. If any provisions are ambiguous, it is the attorney’s responsibility to assist the Personal Representative with filing any necessary actions to determine the proper interpretation of these documents.Look for Critical Clauses such as Reference to PHHE Memorandum, Powers to Sell Real and Personal Property, Specific Bequests, Age of Distributions, How to Pay Taxes, Rest and Residue Clauses, etc.
16 Getting Started with the Probate Administration The probate process is very forms driven, and theofficial Probate Court forms may be downloaded fromthe SC Judicial Department website (Page 280):or by visiting your local probate court website. You may also buy a software program.(See Alphabetical Index of Probate Forms at Page 294)
17 Commencing a Probate Administration **Informal Application or Formal Petition(Form 300PC): The probate administration is commenced by filing Form 300PC to request the informal or formal probate and appointment of a PR. This form was recently revised as of June A Summons and $150 filing fee is only required for Formal Petitions.**Certified Death Certificate from DHEC (Page 278)**Initial Filing Fees for Creditor’s Notice & Probate Court Fees
18 Renunciation of Right To Administration/ Nomination/Waiver of Bond (Form 302PC)This form is typically only necessary for intestate estates or in the event that the nominated Personal Representative and successors are deceased or unwilling or unable to serve. This form may be utilized to avoid formal probate for intestate estates when all heirs agree on who should serve as Personal Representative. In addition, this form can also be used to avoid the Personal Representative from having to expend estate assets to post a fiduciary bond for informal probate.See Page 280 and § (a)(8); § (A)(1)
19 Probate Critical Dates Checklist Once the Certificate of Appointment is issued by the Probate Court then You Must Complete theProbate Critical Dates ChecklistName of Decedent:_________________________________Probate Court:____________________________________Probate Case No:__________________________________Date of Death:______________________________________Date of Appointment of Personal Representative:__________Date of Publication of Creditor’s Notice: ________________Most all of the critical dates stem off of the above events See Page 292 for the complete form
20 Probate Critical Dates Checklist **Notice to Creditors (Form 370PC): Runs 3 Consecutive weeks after Appointment and the Certificate of Publication (Form 370PC) must also be filed with the Court – Retain a filed copy for the file – some Probate Courts contract with the newspapers and the Affidavits are filed directly with the Court**Information to Heirs and Devisees (Form 305PC): Due 30 days after Date of Appointment of Personal Representative (PR)**Proof of Delivery (Form 120PC): Due 30 days after Date of Appointment of PR as evidence of service of Form 305PC and used to comply with Demand for Notice
21 Probate Critical Dates Checklist **Inventory and Appraisement (Form 350PC): Due 90 days after Date of Appointment of PR**Estate Tax Return (IRS Form 706): Due 9 months from Date of Death**Decedent’s Personal Income Tax Return (IRS Form 1040) and Gift Tax Return (IRS Form 709): Due April 15th in year following Date of Death
22 Probate Critical Dates Checklist **Expiration of Creditor’s Claim Period: Earlier of 8 months after first date of publication found on the Certificate of Publication (Form 370PC) or 1 Year from Date of Death**Estate Income Tax Return (IRS Form 1041 and SC1041): Due 4 months and 15 days after closing of fiscal estate year or calendar year if PR elects a calendar year**Interim Accounting (Form 361PC): Due Annually from date of appointment if the estate remains open for longer than a year due to litigation or taxable estate
23 Probate Critical Dates Checklist **Closing of the Estate: Due 3 to 4 months after the creditor’s claim period expires or within three months of receiving a closing letter from IRS if a taxable estate – Closing forms include Petition for Settlement (Form 412PC), Final Accounting (Form 361PC), Proposal for Distribution (Form 410PC), Notice of Right to Demand a Hearing (Form 416PC), Receipts and Releases (Form 403PC), Deeds of Distribution (Form 400PC), and Waivers of Notice (Form 111PC)**Motion for Extension (Form 352PC): Due immediately if any of the above dates cannot be met in a timely fashion
24 Obtaining Tax Identification Numbers An estate is a separate taxpayer. As a result you will have to apply for a tax identification number (“TIN”) for the estate. This TIN will be used by the PR when opening any bank or other accounts in the name of the estate. This number will also be required for the filing of the estate’s fiduciary income tax return (Form 1041). The PR is required to file this return each year during the estate administration if the estate sales assets or earns more than $600 in income.
25 Finding, Protecting, and Valuing Assets After the PR has been appointed, the PR must file an Inventory and Appraisement (Form 350PC**), which describes and places a value on all of the assets of the estate and the debts secured by liens on estate assets. This Inventory must normally include a listing of all property. This typically includes both "probate assets" and "non-probate" assets. The values of the assets are established by various means.**Form recently revised as of June 2010
26 Inventory and Appraisement Form 350PC Schedule A: Real EstateSchedule B: Stocks and BondsSchedule C: Cash and ReceivablesSchedule D1: Insurance Payable to the EstateSchedule D2: Insurance Payable to Beneficiary (Not Estate)Schedule E: Joint Property With Right of SurvivorshipSchedule F: Personal Property (including PHHE)Schedule G: Transfers During Life (Trusts and POD accts)Schedule H: Powers of AppointmentSchedule I: Annuities (IRAs, pensions)Encumbrances: Only Secured Liens
27 Finding the Decedent’s Assets Tax Returns, Bank Statements, Canceled Checks, Brokerage Statements, Insurance Policies, Pay Stubs, Decedent’s Mail, Safe Deposit Box, Public Records for Deeds and Mortgages, Veterans Affairs, Credit Bureaus, Other Estate Paperwork that Decedent was a Beneficiary.Look back to the List of Items Requested at the Initial Conference with PR on Page 297
28 Valuing the Decedent’s Assets You must use Fair Market Value as of the Date of Death for the Probate Court forms. Although you do not have to have a formal appraisal on all assets, there are good reasons to have one. The beneficiaries typically get a step up in basis and having an accurate value on the assets inherited will reduce capital gains tax paid by the beneficiaries of an estate. Also, if the estate is taxable the IRS will be less likely to challenge the valuations if appraisals are attached to the estate tax return.PHHE: If all parties are getting along then I do not recommend an appraisal of PHHE. It is costly. If litigation pursues, you may have no choice. Typically, PHHE is valued at a nominal value.
29 NOTE: Sample Calculations on Page 293 Probate Fee Schedule South Carolina Code Section (B)Property Values Based on the Inventory Fee DueProperty Valued at Less Than $5,000 $25.00Property Valued $5,000 but less than $20,000 $45.00Property Valued $20,000 but less than $60,000 $67.50Property Valued $60,000 but less than $100,000 $95.00Property Valued over $100, $95.00** **plus .15% times over $100,000 up to $600,000**plus .25% times the amount over $600,000NOTE: Sample Calculations on Page 293
30 Ongoing Probate Estate Administration and Duties of PR **Setting up Estate checking account**Transferring Decedent's assets into estate accounts**Protecting assets from waste, destruction, or reduction in value.**Ensuring that property and liability insurance is in place to protect both the property and the PR from personal liability.**Filing claims to obtain life insurance proceeds or retirement accounts for the estate or a beneficiary.
31 **Finding and inventorying any safe deposit boxes. **Paying all proper debts of the decedent.**Paying all proper debts incurred by PR you during the administration**Reviewing investments to determine whether the particular investment should be retained by the estate.**Selling inappropriate estate assets.**Complying with probate court filing requirements and laws.
32 **Filing the final income tax return for the decedent. **Filing required fiduciary income tax returns.**Paying all specific bequests.**Filing the federal and/or state estate tax return, if applicable.**Filing with the probate court any required interim and final fiduciary accountings.**Paying the remaining estate assets to the residuary beneficiaries.
33 Transfer of Real Estate Transfer of Real Estate. The PR also has a duty to file a Deed of Distribution (Form 400PC), with detailed legal descriptions of any real property which the decedent may have owned. This document evidences the transfer of title from the decedent to the beneficiary.TIP: A title search is not absolutely necessary, but add “No Title Search Performed” to the Form 400PC and always compare the Property Tax Notice to the Deeds into the Decedent’s and compare for accuracy. If discrepancies are apparent then a title search is recommended to avoid problems with title in the future. SC has a lot of heirs property and it can be discovered and corrected with proper research.
34 Creditor ClaimsCreditors are directed to file their claims within the required period after the first publication of notice or their claims will be barred. All claims arising before the decedent's death must be presented within the dates specified by state law. Claims must be filed with the PR and with the probate court. The lawyer should advise PR on payment of claims and recommend appropriate dispositions of each creditor’s claim. It will be the PR’s responsibility to review all claims and to disallow any improper claims.
35 Final Accounting. Upon the settlement and closing of the estate, the PR must file with the probate court a final accounting showing all of the decedent's assets owned at death and all receipts, disbursements, and interim distributions. Simultaneously, the PR may file a Proposal for Distribution detailing the distribution of the remaining assets.TIP: Accurate financial record-keeping is absolutely imperative. The PR should keep careful and detailed records with respect to all assets paid to the estate and all disbursements of any kind made by PR, including dates of payment, amounts paid, and reasons for payment.TIP: Get duplicate statements sent to law firm and review statements with PR while entries are easily remembered.
36 Personal Representative's Fee The PR is entitled by law to receive a commission. The method of computation is determined both by the nature of the assets and by state law. The commission will be income to the PR and taxable when received by PR. The PR is not required to accept the commission.TIP: PR is entitled to 5% of the value of the Probate Assets listed on Schedule B, C, D1, F, and I (if estate is beneficiary) along with 5% of the net proceeds from the sale of real estate and 5% of income to the estate (See page 287 and SC Code of Laws Section )
37 Closing the EstateAfter all of the assets have been collected and the debts and taxes paid, the PR must then distribute the remaining assets to those remainder beneficiaries entitled to receive them. Distributions of estate assets to beneficiaries can be complex. SC Forms: Petition for Settlement (Form 412PC), Final Accounting (Form 361PC), Proposal for Distribution (Form 410PC), Notice of Right to Demand a Hearing (Form 416PC), Receipts and Releases (Form 403PC), Deeds of Distribution (Form 400PC), and Waivers of Notice (Form 111PC) along with a Proof of Delivery (Form 120PC) evidencing the closing documents were served on all remainder beneficiaries.
38 Time Period for Estate Administration It is usually not possible to complete the administration of an estate in less than about one year. Normally, an estate administration takes up to eighteen months due to the various income tax returns that are required to be filed. If there are disputes with heirs or creditors, it can take even longer. If the estate is required to file an estate tax return, then the estate administration period might be two to three years from the date of death.
40 As of press time, we are still awaiting the final verdict for 2010. Will Congress reinstate the $3.5 million dollar threshold for estate taxes?Will Congress increase the threshold?Will Congress do nothing at all and allow the threshold to go back to $1 million dollars?
41 Have you addressed the possibility of estate taxes in your estate planning? Threshold for Estate Taxes Max. Rate2009 $3,500, %2010 $ %2011 $1,000, %
42 Estate Taxes*Due nine months from date of death (IRS Form 706) if in a year with estate taxes*The Estate planning documents outline who has to pay the estate taxes and in what proportions – if not addressed then pro-rata based on inheritance*Charities and spouses do not pay estate taxes on bequests and are typically treated as a deduction on the estate tax return*Currently, SC does not impose an estate tax
43 Decedent’s Income Tax Returns The PR is also responsible for the final state and federal income tax returns of the decedent, not only for the year in which the decedent died, but also for all previous years, if any, for which returns were or will be due but have not been filed. Thus the PR must determine if sufficient income was received by the decedent during the year of death and for previous years in order to determine whether income tax returns are due.
44 Fiduciary Income Tax Returns If the estate receives income during any year, a federal "fiduciary" income tax return must be filed for the estate. A state fiduciary income tax return must be filed as well for any state in which the estate earned income during the estate’s administration.
46 Does Your Adult Client Have a Power of Attorney or a Health Care Power of Attorney? Is it a Durable Power of Attorney? Special language must be in the document to make it durable (ie. Language that the document is still effective regardless of Incapacity of the Principal)Does the Power of Attorney have a springing power of attorney? What are the requirements for springing into effect?Has the Original Power of Attorney been recorded in the County Register of Deeds office?
47 See Pages 288 to 290 for more details What happens if no Durable Powers of Attorney or Health Care Powers of Attorney have been executed or are found?If no DPOA or HCPOA, then a Petition for Guardianship (Form 530PC) and Conservatorship (Form 540PC) will need to be filed in the Probate Court to have a relative or friend appointed to handle an incapacitated adult’s medical and financial affairs and the Court will monitor the actions of the court appointed fiduciary annually until the incapacity terminates.See Pages 288 to 290 for more details
48 Conservatorships for Minors $10,000 or more left via Will, Beneficiary Designation, JTROS, Worker’s Comp Benefits, Personal Injury SettlementFiduciary Appointed until Minor is 18Money is conservatively invested and subject to a Bond and/or Restricted Account AgreementAnnual Financial Reporting to the CourtPetitions for Expenditures and Orders required to spend funds on the Minor