By Leah Morrison, Attorney
English, Lucas, Priest and Owsley, LLP
One of the most frequent reasons clients tell me they want to create a will, trust, or other estate documents is to avoid probate. People have come to see probate as an unduly burdensome process that can cost a lot of money and time, but in Kentucky, it’s not as bad as you might fear.
Before we delve into it, let’s take a moment to review what probate is. Probate is the legal process by which the financial affairs of a deceased person are concluded. It is a court supervised process in which assets are accumulated and distributed in accordance with the decedent’s will or pursuant to the statutory plan of descent, and debts are gathered for payment. Although, in Kentucky, the supervision provided by the court is often times very minimal.
While Kentucky’s probate laws are sufficient to ensure the deceased person’s assets are properly managed and distributed to the appropriate person, the requirements of the probate process are minimal enough that most people navigate it smoothly without incident.
The one thing, though, to know is that probate does make your will public. Your will becomes a public document that is recorded in the court system, and is available to anyone who wishes to view it.
While it is common for an individual to use planning techniques to avoid probate, there is a disadvantage to avoiding probate. Although there is no statute that requires an estate to stay open for any particular length of time, estates generally do have to stay open for a minimum of six months. This is because KRS Chapter 396 states that creditors of estates have six months to file claims. Any claims not filed within the six-month period are not enforceable. Potential claims of creditors will not be barred unless an estate is probated.
Completely avoiding probate can be an expensive and onerous process. It takes a lifetime commitment to achieve, as it requires an individual to constantly move their assets out of their individual name. If you still decide you want to avoid probate, can you do that without going through an extensive estate planning process? It depends. Probate is altogether unnecessary for small estates. Here are the scenarios in which you are not required to take an estate through probate.
The executor doesn’t have anything to administer
First, under KRS 395.455(2), if the District Court is satisfied that no probate assets will pass through the hands of the personal representative (also known as the executor), the District Court may “dispense with administration.” In cases in which the person who passed away had a will, the Will be probated only. That means that the will becomes public record, but that the assets that belonged to the person who died won’t go through a court process. They’ll simply be distributed to the person who is designated to receive those assets.
Example: Your uncle is executor of your mother’s estate, but none of your mother’s assets will go through probate because everything had a beneficiary designation. The court can decide to dispense with administration, and file the will in the public record.
However, be mindful that under this statute, the executor must have absolutely nothing to transfer. This includes any income tax refunds, utility rebates, unclaimed property, etc., in addition to anything we would typically recognize as a decedent’s asset – such as a bank account or car.
The estate has a low value
If a person dies with an estate worth $15,000 or less, and the only people inheriting from the estate are a spouse and/or children, the court can dispense with administration. Under KRS 395.455(1), where the surviving spouse’s exemption, alone or taken together with preferred claims paid by the surviving spouse where the decedent’s estate is legally liable for payment, equals or exceeds the value of the decedent’s probate assets, the District Court may order that the administration of the estate be dispensed with and assets be transferred to the surviving spouse or his or her designee.
A few notes about this: the $15,000 exemption is the total value of assets in the estate, so this is not a $15,000 exemption for the spouse, a $15,000 exemption for a son, and then a $15,000 exemption for another child. Also, the preferred claims are taken out of the value of the estate before the exemption is applied.
Example: a husband dies leaving everything to his spouse. He has only one asset, which is debt-free, and is titled only in his name: his boat. It’s worth $20,000. His funeral costs are $5,000. That’s a preferred claim, and that $5,000 is subtracted from the value of the $20,000 boat in the estate. The same would be true of any federal or state tax debt or a bill from an attorney or CPA for work related to the estate. All of those items should be paid from the estate, and then the value of the estate is calculated.
Preferred creditor gets priority
What’s a preferred creditor? In an estate, preferred creditors are the funeral home that handled the funeral for the deceased person, the costs for administrating the estate (think attorneys and CPAs), the IRS, any state tax agency are all first in line to be paid from the estate.
The next in line are any creditors that are owed money from a specific asset (think home mortgage).
Finally, the last debts to be paid are unsecured debts (think credit cards).
All parties agree
Under KRS 395.470, if a person died without a will and without any debts, all of the decedent’s beneficiaries may agree in writing to dispense with administration of the estate. This is so unusual and rare that I would highly advise against relying on this statute to avoid probate.
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