Operation of Law Assets
The legal process that transfers property the moment of your passing is known as “Operation of Law”, and these assets are sometimes referred to as “Testamentary Substitutes” (because they are substitutes of your Last Will and Testament, and therefore do not pass by your Will). These accounts or assets have a named beneficiary, such as a life insurance policy, retirement plan, or Transfer on Death [“TOD”] account, and they tend to be easy to collect once identified, as all that is required to collect them is the decedent’s Death Certificate. And yet while transferring the assets themselves may seem simple, many potential hazards abound.
How do you identify these assets if the deceased individual was not completely transparent about their existence? What are the tax consequences of distributing an account directly to you or to some other entity? What are tax reporting requirements for these accounts, especially if no one is named as an Executor to administer to taxes under the estate? What about estate creditors? And just because collecting the funds was easy does not mean your affairs are done.
Probate / Administration
Assets that pass under the legal process known as Probate are those that we don’t know where they go the moment you pass away, so we need to look at the Will to ascertain who receives them. If no Will is present the process is called Administration. In both cases you need to place the court on notice, fill in a Petition, inform the next of kin and attain their permission to commence the proceeding in court, disclose the nature of those assets to the court, and many other steps. Probate and Administration are a windfall event for Trust & Estate attorneys, and some collect dearly while administering to the process.
The truth is that most people only have to deal with Probate once or twice in their lives, and thus have no idea how much they are going to be charged. Due to pricing imbalances, many unqualified attorneys are attracted to this area of the law. The mixture of these two ingredients often leads to high fees with long waits to collect estate assets.
In truth, you will need to be prepared to wait for assets passing via Probate and Administration, but the reason for the wait should be fully explained to you, as should the requirements of being an Executor or Administrator. It is okay to not understand WHY the process works the way it does, but it is imperative to work with an attorney who can explain HOW the process takes place and your responsibility as either the fiduciary or the beneficiary.