When someone dies, it is often necessary to start a probate proceeding to get the person’s estate administered. Probate is a court-supervised process to deal with a deceased person’s assets. That process will distribute those assets – or the net proceeds from the sale of those assets – to the heirs or beneficiaries.
A probate proceeding is only necessary for assets that do not have another legal method to accomplish their transfer. Assets with beneficiary designations or joint titles usually do not require probate administration.
Probate proceedings are typically conducted in “informal administration”. That means they are handled by filing paperwork with the Register in Probate and without any court hearings. Formal administration requires hearings before a judge. Administration starts with filing a petition or application. If there is a will, it should be filed with the application. The work includes preparing an Inventory of all assets requiring administration. It includes a notice to creditors of a deadline to file claims against the estate. It involves paying debts and expenses of administration, preparing income tax returns, liquidating assets as needed, preparing an accounting, and distributing the estate’s net cash or assets to those who are legally entitled to the property.
Most people have limited or no experience with probate. As a result, misconceptions about the process have developed. The following are some common misconceptions, followed by more accurate information on the subjects:
MISCONCEPTION: If I don’t have a will, the state will get all of my assets.
CORRECT INFORMATION: Wisconsin law will only transfer your assets to “the state” specifically the state school fund, under very limited circumstances. Only if you (1) do not have a will and (2) have no close relatives, will your probate assets pass to the state school fund. What do we mean when we say “no close relatives”? You must have no living spouse, descendants, parents, siblings, grandparents, or descendants of your grandparents. Having “the state” get your estate because you have no will and no close relatives is extremely rare.
CORRECT INFORMATION: Although a meeting for a “reading of the will” is sometimes shown in films and television shows, there is no legal requirement for such a meeting. Wisconsin law requires that all beneficiaries under the will and all heirs at law must receive a copy of the will, which allows them to read it for themselves. Although a lawyer may be willing, for a fee, to conduct a “reading of the will” it is not required and is rarely necessary.
CORRECT INFORMATION: A will only governs assets that do not have another legal means for transfer upon the owner’s death. Assets with beneficiary designations, such as life insurance, for example, will pass to the beneficiaries named under the insurance contract regardless of whether those beneficiaries are included in the deceased person’s will. You can read more on this subject here: Does a Will Control All of Your Assets When You Die?
CORRECT INFORMATION: A better way to think of this is that no one has legal authority to deal with the assets that are subject to probate administration until they are given that authority by the court system. This authority comes when “Domiciliary Letters” are issued to the estate’s personal representative (called “executor” in some states). Domiciliary Letters can often be issued in a matter of a day or two after starting the probate administration, if all heirs are cooperating.
CORRECT INFORMATION: It is sometimes necessary or desirable to sell all assets in an estate so only cash remains to be distributed. However, it is often possible to allocate specific assets to a beneficiary’s share of the estate. For example, assume an estate has more than enough cash to pay expenses and creditor claims. In addition, it has 100 shares of a very desirable corporate stock that is rapidly increasing in value. The estate’s four beneficiaries would prefer to receive the stock rather than cash from its sale. Unless the deceased person’s will requires that the stock be sold, the personal representative can instead distribute 25 shares of the stock to each beneficiary.
CORRECT INFORMATION: Wisconsin has no inheritance tax or estate tax. The federal estate tax currently only applies if the deceased person’s lifetime taxable gifts, plus assets owned at death have a total value exceeding $11.18 million. So only a small percentage of estates face an estate tax. In addition, most of what you might inherit as an heir or beneficiary is not included in your taxable income as an individual. Notable exceptions include inheritances of distributions from traditional IRAs, the taxable portions of annuities, or your portion of any income the estate itself might have, for example the interest or dividends from estate assets.
Misconceptions, including those about the probate process, usually result from people making conclusions without complete and accurate information. You can avoid these misconceptions, and the problems that sometimes develop from them, by getting good information. After a loved one dies, it is best to speak with a lawyer about what may be required to administer the deceased person’s estate.