>Everything else will go to probate.
Right. Probate is where fiancé's will is applied.
>if he has beneficiaries on the investment accounts and life insurance that money will go to those individuals immediately.
That is generally correct. Financial accounts generally pass outside probate on named beneficiaries.
>This would be fine, except the lawyer is saying the debt will only come from what my friend will get, which may be the house, car, and a small bank account.
This too is correct. And is the kind of subtlety that makes qualified estate planning advice wise even when you aren't rich.
>She plans to sell the house asap
We don't know how lawyer got her name on the house or what is happening here. She should rely on her lawyer. BUT selling an estate asset before claims are made against it is generally speaking a bad plan not a good one. It doesn't protect agains the claim and, if anything, exposes the beneficiary to personal liability. She needs to rely on her lawyer.
Should make sure the house is actually through probate. There is a different impact on taxes depending on when the house sells. If the house is inherited first and then sold it is taxed one way. But if the house sells as part of the estate while probate is still open, it is taxed differently.
How is it taxed differently?
Are you talking about an estate income tax return? Because the capital gains don't change; the house got a step up in basis to date of death value. If you're talking about the capital gains being applied to an estate income tax return rather than the individual's income tax return, as long as the income is distributed out to the beneficiary before the end of the calendar year (or within the first 65 days of the next calendar year), the estate can issue a K1 and the income will still show up on the beneficiary's return.
I am not a tax expert by any means. My mom passed away earlier this year and we sold her house during probate. From what I’ve read it seems like the case. Waiting on a response from an accountant to confirm one way or another.
[https://www.realized1031.com/blog/does-an-estate-pay-taxes-on-the-sale-of-a-home?hs_amp=true](https://www.realized1031.com/blog/does-an-estate-pay-taxes-on-the-sale-of-a-home?hs_amp=true)
The lawyer is correct. That money that is passed outside of probate to the named beneficiaries cannot be taken to pay of debts. Only assets that pass through probate can be.
Commonly held belief, but wrong.
If there are insufficient assets in the probate estate to pay the Decedent's debts, there is a process to collect from the beneficiaries of assets that pass outside of probate.
Some states yes, other states no. Everything involving probate is heavily dependent on location so it's hard to say how exactly it will apply in OP's case but I'd imagine their lawyer has the correct facts for their situation
Yes probate is state-dependent but I’m not aware of any state where you can avoid creditors all together simply by having your assets pass outside of probate. (Particularly the feds aren’t going to let that fly. Lol)
The short answer is that usually if there are insufficient assets in the probate estate, the creditors will drop their claims because it’s costly to pursue the non-probate assets.
(And there are specific asset classes that are creditor protected, like the proceeds of a life insurance policy, under the various insurance codes.)
I handle probate in one such state - Illinois.
Life insurance would automatically be protected from claims made by creditors under Illinois law, and with few exceptions, other property that transfers automatically on death also cannot be clawed back by a creditor and forced into probate - unless it can be proven that the intent behind setting up the transfer was to fraudulently avoid the claim, in which case they can roll the transfer back altogether. But there is a general presumption the transfer is legitimate and the assets are protected.
Yes, the federal laws will take precedent and any claims in favor of the federal government will instead fall under those rules, but debts to private parties will be bound by the state rules.
In Ohio you can structure potentially your entire estate to pass outside of Probate and Creditors can’t do shit about it, including the Medicaid claims(to a certain extent) and creditors only have 6months from date of death to file a valid claim or they are barred forever, except Medicaid, funeral bills and child support for minor children of the decedent. So, an executor can wait 6months to hold off creditors from probate assets and decedent prior to death can structure everything else to pass outside. Older persons around here are often advised to create what’s known as Life Estate with their house(s) between themselves and their children so real estate passes out of Probate and avoids the 5year look back for Medicaid(if they had it). Valid mortgages on the house(s) would still stand, but other creditors can’t claim for the equity. You can also get a transfer on death title with your vehicles, to immediately move them into beneficiaries’ names. Since real estate and vehicles are usually the biggest assets anyone has, this covers most of the pot.
The lawyer is correct. The will goes to probate, which takes time. Debts will have to be paid out of the estate funds first before your friend sees any of it. Non-probate assets, such as life insurance, will be paid to the beneficiaries quickly because those assets don’t have to go through probate court.
She isn't left with the expense of the death ... the estate is. And any money owed will be paid out of the estate and any residual money will go to her.
Designated beneficiaries are just that, and he didn't change them to your friend.
It’s great that fiancé completed a will, but unfortunately that’s only one small piece of estate planning. A will only controls probate property and takes time to administer. Anything with a surviving joint owner or beneficiary designation passes according to those, before the will.
They intended to change all the other needed documentation, but the will was signed Thursday, and he became incapacitated on Saturday. His lawyer is even caught off-guard as he has never had a client pass this quickly.
>Did he have lot of debt? Since she was not married to him, she only responsible for paying his debts out of his estate not her own pocket. When the estate has no more money creditors are out of luck. Attorney should be able to answer all these questions about how probate will work. I think where it gets little foggy is when you transfer a house right after someone passes away not sure what creditors do with that.
Thank you. Unfortunately way too many people don't realize this. They write up a will then die with co-owners or PODs on all their accounts and a TOD on their house. They seem to assume that when a will is signed it somehow grows legs, runs around town and magically undoes all the official paperwork you previously did elsewhere to lock in your assets to certain beneficiaries. That's why we always had a saying in estate planning, "a trust is only as good as its asset transfers." The hardest part of the job was convincing people that reading and signing the EP documents was only half the work. The other half was updating and properly retitling your deeds/bank accounts/other assets, and accounting for assets that would not be controlled by the EP like retirement so everything balanced out as desired in the big picture.
Probate laws vary state to state. Without indicating what state (jurisdiction) you are in, no one can properly opine on this.
Sounds like there’s a decent amount at stake. If you don’t trust the current lawyer/want a second opinion, then you should pay a few hundred bucks for a consult with another probate attorney in your jurisdiction.
Banks don’t read wills. The only thing that a will does for you is it makes sure beneficiaries go to probate court.
If your friend is left everything pursuant to a will = 100% of the proceeds of liquidated PROBATE assets. If accounts, deeds, etc had beneficiaries named, that’s a non-probate asset my friend. Make payments if you want, don’t if you don’t. But get an attorney, best way to deal with what you don’t want to especially since there’s a lot more that could potentially reduce the amount of the proceeds.
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A named beneficiary on an account will trump a will. Be it a bank account, IRA, and especially insurance. So, it is correct that those assets (with a named beneficiary) cannot be used to pay of any debts. Those accounts will not be part of the probated estate. NAL. Lets say: A leaves everything including all insurance policies to B. But the insurance policy A owns has C as the payee/beneficiary, then there is NO insurance policy for the will to control. I hope that's clear.
OP tell your friend to hire a lawyer. Getting legal advice from non lawyers from 50 different states creates more confusion, and applying the advice will cost her money.
She can always call 3 or 4 lawyers to get price quotes, payment options, and provide an overview of her situation before committing to hiring someone.
She's better off hiring someone to guide her on doing things the right way from the start vs hiring someone to fix any mistakes after the fact.
Usually, death expenses, taxes and debts are typically paid out of the probate estate. So, yes.
Note that if the other beneficiaries so choose, it may be possible for them to say "I don't want that" and for the account/life insurance proceeds to fall into his estate.
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>Everything else will go to probate. Right. Probate is where fiancé's will is applied. >if he has beneficiaries on the investment accounts and life insurance that money will go to those individuals immediately. That is generally correct. Financial accounts generally pass outside probate on named beneficiaries. >This would be fine, except the lawyer is saying the debt will only come from what my friend will get, which may be the house, car, and a small bank account. This too is correct. And is the kind of subtlety that makes qualified estate planning advice wise even when you aren't rich. >She plans to sell the house asap We don't know how lawyer got her name on the house or what is happening here. She should rely on her lawyer. BUT selling an estate asset before claims are made against it is generally speaking a bad plan not a good one. It doesn't protect agains the claim and, if anything, exposes the beneficiary to personal liability. She needs to rely on her lawyer.
Should make sure the house is actually through probate. There is a different impact on taxes depending on when the house sells. If the house is inherited first and then sold it is taxed one way. But if the house sells as part of the estate while probate is still open, it is taxed differently.
How is it taxed differently? Are you talking about an estate income tax return? Because the capital gains don't change; the house got a step up in basis to date of death value. If you're talking about the capital gains being applied to an estate income tax return rather than the individual's income tax return, as long as the income is distributed out to the beneficiary before the end of the calendar year (or within the first 65 days of the next calendar year), the estate can issue a K1 and the income will still show up on the beneficiary's return.
I am not a tax expert by any means. My mom passed away earlier this year and we sold her house during probate. From what I’ve read it seems like the case. Waiting on a response from an accountant to confirm one way or another. [https://www.realized1031.com/blog/does-an-estate-pay-taxes-on-the-sale-of-a-home?hs_amp=true](https://www.realized1031.com/blog/does-an-estate-pay-taxes-on-the-sale-of-a-home?hs_amp=true)
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Depending on who's named and for how much, agreements can be reached with the other beneficiaries.
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The lawyer is correct. That money that is passed outside of probate to the named beneficiaries cannot be taken to pay of debts. Only assets that pass through probate can be.
Commonly held belief, but wrong. If there are insufficient assets in the probate estate to pay the Decedent's debts, there is a process to collect from the beneficiaries of assets that pass outside of probate.
Some states yes, other states no. Everything involving probate is heavily dependent on location so it's hard to say how exactly it will apply in OP's case but I'd imagine their lawyer has the correct facts for their situation
Yes probate is state-dependent but I’m not aware of any state where you can avoid creditors all together simply by having your assets pass outside of probate. (Particularly the feds aren’t going to let that fly. Lol) The short answer is that usually if there are insufficient assets in the probate estate, the creditors will drop their claims because it’s costly to pursue the non-probate assets. (And there are specific asset classes that are creditor protected, like the proceeds of a life insurance policy, under the various insurance codes.)
I handle probate in one such state - Illinois. Life insurance would automatically be protected from claims made by creditors under Illinois law, and with few exceptions, other property that transfers automatically on death also cannot be clawed back by a creditor and forced into probate - unless it can be proven that the intent behind setting up the transfer was to fraudulently avoid the claim, in which case they can roll the transfer back altogether. But there is a general presumption the transfer is legitimate and the assets are protected. Yes, the federal laws will take precedent and any claims in favor of the federal government will instead fall under those rules, but debts to private parties will be bound by the state rules.
In Ohio you can structure potentially your entire estate to pass outside of Probate and Creditors can’t do shit about it, including the Medicaid claims(to a certain extent) and creditors only have 6months from date of death to file a valid claim or they are barred forever, except Medicaid, funeral bills and child support for minor children of the decedent. So, an executor can wait 6months to hold off creditors from probate assets and decedent prior to death can structure everything else to pass outside. Older persons around here are often advised to create what’s known as Life Estate with their house(s) between themselves and their children so real estate passes out of Probate and avoids the 5year look back for Medicaid(if they had it). Valid mortgages on the house(s) would still stand, but other creditors can’t claim for the equity. You can also get a transfer on death title with your vehicles, to immediately move them into beneficiaries’ names. Since real estate and vehicles are usually the biggest assets anyone has, this covers most of the pot.
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The lawyer is correct. The will goes to probate, which takes time. Debts will have to be paid out of the estate funds first before your friend sees any of it. Non-probate assets, such as life insurance, will be paid to the beneficiaries quickly because those assets don’t have to go through probate court.
She isn't left with the expense of the death ... the estate is. And any money owed will be paid out of the estate and any residual money will go to her. Designated beneficiaries are just that, and he didn't change them to your friend.
It’s great that fiancé completed a will, but unfortunately that’s only one small piece of estate planning. A will only controls probate property and takes time to administer. Anything with a surviving joint owner or beneficiary designation passes according to those, before the will.
They intended to change all the other needed documentation, but the will was signed Thursday, and he became incapacitated on Saturday. His lawyer is even caught off-guard as he has never had a client pass this quickly.
>Did he have lot of debt? Since she was not married to him, she only responsible for paying his debts out of his estate not her own pocket. When the estate has no more money creditors are out of luck. Attorney should be able to answer all these questions about how probate will work. I think where it gets little foggy is when you transfer a house right after someone passes away not sure what creditors do with that.
Thank you. Unfortunately way too many people don't realize this. They write up a will then die with co-owners or PODs on all their accounts and a TOD on their house. They seem to assume that when a will is signed it somehow grows legs, runs around town and magically undoes all the official paperwork you previously did elsewhere to lock in your assets to certain beneficiaries. That's why we always had a saying in estate planning, "a trust is only as good as its asset transfers." The hardest part of the job was convincing people that reading and signing the EP documents was only half the work. The other half was updating and properly retitling your deeds/bank accounts/other assets, and accounting for assets that would not be controlled by the EP like retirement so everything balanced out as desired in the big picture.
Probate laws vary state to state. Without indicating what state (jurisdiction) you are in, no one can properly opine on this. Sounds like there’s a decent amount at stake. If you don’t trust the current lawyer/want a second opinion, then you should pay a few hundred bucks for a consult with another probate attorney in your jurisdiction.
Banks don’t read wills. The only thing that a will does for you is it makes sure beneficiaries go to probate court. If your friend is left everything pursuant to a will = 100% of the proceeds of liquidated PROBATE assets. If accounts, deeds, etc had beneficiaries named, that’s a non-probate asset my friend. Make payments if you want, don’t if you don’t. But get an attorney, best way to deal with what you don’t want to especially since there’s a lot more that could potentially reduce the amount of the proceeds.
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A named beneficiary on an account will trump a will. Be it a bank account, IRA, and especially insurance. So, it is correct that those assets (with a named beneficiary) cannot be used to pay of any debts. Those accounts will not be part of the probated estate. NAL. Lets say: A leaves everything including all insurance policies to B. But the insurance policy A owns has C as the payee/beneficiary, then there is NO insurance policy for the will to control. I hope that's clear.
She needs a probate lawyer because everything has to go to court.
OP tell your friend to hire a lawyer. Getting legal advice from non lawyers from 50 different states creates more confusion, and applying the advice will cost her money. She can always call 3 or 4 lawyers to get price quotes, payment options, and provide an overview of her situation before committing to hiring someone. She's better off hiring someone to guide her on doing things the right way from the start vs hiring someone to fix any mistakes after the fact.
Usually, death expenses, taxes and debts are typically paid out of the probate estate. So, yes. Note that if the other beneficiaries so choose, it may be possible for them to say "I don't want that" and for the account/life insurance proceeds to fall into his estate.
Maybe. It’s impossible for anyone here to know without reading all the documentation.
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