Probate in Central Oregon.
“What!? You’ve got to be kidding!” Fighting back tears, Holly couldn’t believe what she was hearing. Her mother just died. So shocking. So unexpected. Now her friend, Trish, a lawyer in Bend, Oregon, is telling her she needs to probate her mother’s estate. “But mom had a Will. Doesn’t that mean we get to skip probate?”
“I’m sorry, but that’s not right.” Answers Trish as soothingly as she can. “It’s the most common misunderstanding I run into in my estate planning practice. It seems like everyone believes that having a Will avoids probates.” After a pause to let Holly digest that information, Trish goes on: “Having a Will requires probate to implement the deceased person’s intentions as stated in the Will. But probate is not the end of the world. There are even circumstances in which your mother’s estate should be probated.”
“But mom only had her house and a bank account. The bank account is small. She just received her Social Security payments into it and paid her living expenses out of it. I think she has an IRA somewhere too. Isn’t her estate small enough to skip probate?” Holly argues with a sense of doom.
“No, I’m sorry that’s not the case. In Oregon, where your mother lived, there is technically no amount of value, cash or tangible personal property, that can pass without a probate. As a practical matter, people generally deal with tangible personal property without probate when those are the only assets the decedent owned. But the people who receive those assets take them subject to the claims of the decedent’s creditors, if those creditors are unpaid. I have yet to hear of a case in which a creditor went after the heirs of a decedent for unpaid debts when the only assets were tangible personal property. In this case, because your mother owned her home and a bank account, probate is necessary,” explained Trish.
“Okay. How do we get started?” Asked Holly with a tone of resignation.
“We’ll need your mother’s original Will and her death certificate, once it’s available. We will also need a list of the people your mother named in her Will and their addresses and relationships to your mother,” said Trish.
What Probate Is, And Isn’t
Probate is the court process by which the written intentions in a Will are implemented. If a decedent did not have a Will, probate is the court process by which the decedent’s assets are passed to his or her heirs under Oregon’s intestate succession laws. Many of my clients come to me with the express intent of avoiding probate, but without a clear understanding of what it is or whether it should be avoided in their case.
The probate process in Oregon is statutory, meaning that the steps for probating a will are dictated by the Oregon legislature. In the probate process, the court appoints a personal representative to administer the estate. This person is most commonly the person nominated in the Will to serve in that capacity. Some people, such as disbarred attorneys, minor children, an incompetent person, a former attorney who resigned while under investigation for ethics violations, and licensed funeral service practitioners, are disqualified from serving as a personal representative.
The probate process is also the forum in which the court appoints a guardian for any minor children left by the decedent. Typically, the other surviving parent is named guardian. If there is no surviving parent, the court will look first to the intent of the decedent as stated in the Will.
Drawbacks of Probate
There are three primary drawbacks of probate: (1) it is time-consuming; (2) it is relatively expensive; and (3) it is public.
The typical probate proceeding takes between 7 and 12 months to complete. That means that from the time the decedent dies through the completion and distribution of the estate, there could very realistically be a 12-month delay. That timeline can be significantly lengthened in a very complex estate. In some circumstances, the personal representative may choose to keep the estate open for well over a year in order to lengthen the time period for payment of federal and state death taxes. In other circumstances, simply marshaling the decedent’s assets consumes significant periods of time.
Also, the very nature of the Oregon probate process leads to some time delays and expense. In Oregon, during the first 90 days after his or her appointment, a personal representative investigates the decedent’s financial affairs. The personal representative must also file an inventory of all of the decedent’s assets within 60 days of his or her appointment by the court. The personal representative must arrange for a notice to be published in a local newspaper of general circulation. The probate cannot be completed for at least four months from the date this notice is first published. The personal representative must give notice to heirs (even if they are disinherited) and devisees as well as known creditors. Note that these deadlines can be extended with approval of the court.
Simply because a probate takes several months to complete does not mean that all the decedent’s assets are tied up and unavailable for the support of his or her family. Quite the contrary. There are statutory provisions that permit a court to set aside all or part of an estate for the support of the surviving spouse and children. However, all such expenditures from an estate must be approved in advance by the court. This process typically leads to some delay and expense.
The probate process is also relatively expensive. This is due, in part, to the relatively large amount of attorney fees associated with the administration of an estate. There is also a court filing fee (up to $596), which the estate must pay. Another significant expense is the personal representative fee which is a percent of the estate determined as follows:
PercentageAmount of Estate7%First $1,0004%Next $9,0003%Next $40,0002%In excess of $50,000;1%Of the property, exclusive of life insurance proceeds, not subject to the jurisdiction of the court but reportable for Oregon inheritance tax or federal estate tax purposes (for example IRAs).
In addition, the court may order extra compensation for “any extraordinary and unusual services not ordinarily required of a personal representative.” Frequently, but not always, if the personal representative is a family member or devisee of the decedent, he or she will waive the personal representative fee. This fee is taxable income to the personal representative.
It is not unusual for the costs of a fairly simple (one home, no other real property and no small business) moderate-sized estate (less than $800,000) to be $4,000 – $6,000, which includes attorney fees and accountant fees, as well as other costs, but excludes personal representative fees. I have personally assisted with the administration of estates in which the fees and costs have been as little as $2,200 or well in excess of $60,000.
The third significant drawback of probate is that it is public. Anyone can go to the county courthouse and, for 25 cents per page, copy any portion of the probate file. As required by Oregon law, the probate file will include a list of all of the probate assets of the decedent, all of the creditors of the decedent, and names and addresses of all of the heirs and devisees of the decedent. For some people, this disclosure of personal information alone is sufficiently intrusive to justify avoiding probate.
If Probate Is So Horrible, Should Everyone Avoid It?
For some people, avoiding probate may be inappropriate. One of the most significant benefits of the probate process is that it has the effect of cutting off claims of unknown creditors. This means that an individual injured by the decedent has a short time in which to file his or her claim against the estate (even if the creditor is not yet aware of the claim or the injury) or lose the right to pursue the decedent. Any insurance the decedent had which would apply to the creditor would still be available, but to the extent the insurance is inadequate to fully compensate the injured person, the decedent’s estate would be off limits.
This shortened timeline is measured from the time the first notice is published in the local newspaper. The notice must be published for three consecutive weeks. From the time it is first published, any creditors, whether they know they are creditors of the estate or not, have only four months in which to file a claim against the estate. After that four-month time period, claims against the estate are too late.
A similar four-month time period is available in the context of revocable living trusts as well. A trustee of a revocable living trust may petition the probate court to determine the claims of creditors of the settlor. To do so, the trustee must file a petition with the court very similar to a probate petition. Once that petition has been filed, the trustee must publish a notice in the newspaper very similar to the notice that is required in the probate context. As with the probate context, claims may be filed against the trust estate and may be allowed or disallowed. Claims of unknown creditors are disallowed four months after the date of the first publication of the notice in the newspaper. Once all of the claims have been settled in the context of the court proceeding for the trust administration, the trustee may petition the court to close the case. This procedure is so similar to a probate proceeding that it runs the risk of being too complicated. It also requires disclosure of all the trust assets.
This shortened statute of limitations is of particular importance to professionals such as attorneys, accountants, doctors, podiatrists, dentists, architects, general contractors, veterinarians, and the like. Only you know whether there could be such a potential claim against your estate. If there is, you need to discuss this matter with your attorney. If you believe your personal or business circumstances warrant utilizing this four month time period, I would recommend that you consider a limited probate rather than using the trust probate procedure. More on limited probates later.
For some estates, the very cumbersome nature of the probate proceeding is of great assistance. Under Oregon law, creditors, even known creditors, of the estate have a limited time period in which to file a claim against the estate to seek payment of the debt. If the creditor fails to timely file the claim, the debt can be disallowed by the personal representative.
If a creditor timely files a claim against an estate but the personal representative disallows the claim, the creditor must file suit or seek a summary determination of the debt within 30 days of the disallowance. If the creditor fails to jump through these procedural hoops, the personal representative has no obligation to pay the debt. This is particularly helpful in estates with large amounts of debt and support obligations, such as the financially struggling couple with young children. To maximize the remaining estate available for the surviving spouse and the children, the personal representative may choose to force all creditors to jump each probate hoop before being paid.
It is also possible in the context of a revocable living trust to maximize the estate assets while minimizing the chances of creditors to successfully pursue the estate for payment. Most typically, creditors of an estate in which there is a revocable living trust do not pursue the remedies they have available under Oregon law for claiming against a trust because the amount of the obligation is insufficient to justify the expense of pursuing it. In addition, from a creditor’s perspective, once they have been advised that no probate will be filed, it is very difficult for them to determine whether the lack of a probate is driven by lack of assets or by some more sophisticated means of avoiding probate. Because creditors cannot be certain that there are assets available to pay the debt, they tend to be reluctant to pursue the trust estate for payment.
Because of the above reasons why one would want to avoid probate, and the countervailing reasons why some decedents should not avoid probate, I recommend that, if an estate should intentionally be subject to probate, we consider a controlled probate. By creating an estate plan in which nearly all assets pass outside of probate, we can control the number and type of assets which pass through probate. This is useful to restrict the amount of information the personal representative is required to disclose and the amount of complexity involved in the estate. This also permits us to take advantage of the limitation on liability generated by the probate process while minimizing the negative attributes of that process.
Small Estate Proceeding
A small estate affidavit proceeding is an alternative for some individuals in Oregon. For decedents dying after January 1, 2005, the small estate affidavit proceeding is available only to estates in which the decedent owned real property worth not more than $150,000 and personal property worth not more than $50,000. These amounts are gross amounts – you do not get to subtract the amount of a lien, mortgage, land sale contract or trust deed on the real estate. A small estate proceeding does not have the added benefit of cutting off claims of unknown creditors because there is no requirement of a publication in the local newspaper, which would give the creditor notice of the timeline. Typically, a small estate affidavit proceeding costs between $1,800 and $3,500 in attorney fees, accounting fees, and filing fees. This is an estimate of what is typical and not a flat fee quote. The amounts that apply to decedents dying before January 1, 2005 are lower. Contact my office for additional information.
