Introduction
So, you’ve been nominated as a Personal Representative of someone’s estate. Chances are that the estate you’ve been asked to administer belongs to one of your parents. You, as the most responsible (or physically closest) child, want to honor the decedent’s wishes and fairly administer the estate. Do you accept or decline the nomination? What exactly does a Personal Representative do? While it is impossible to cover every situation that a Personal Representative might deal with, this article will guide you through the important parts of the probate process.
What is Probate?
Probate is a legal proceeding commenced by an interested party to administer a deceased person’s assets. However, a probate proceeding only controls the disposition of probate assets. Probate assets can generally be thought of as assets held solely in the name of the decedent and which require the use of the probate process to transfer ownership from the estate to the intended beneficiary. Probate assets include tangible personal property such as clothing and household furniture; real property titled solely in the name of the decedent, including real estate held as a tenant-in-common; and bank accounts, stock, bonds, mutual funds, etc., if the accounts do not have a payable on death,transfer on death, or survivorship designation.
In contrast, non-probate assets include, but are not limited to, assets held as joint tenants with right of survivorship; multi-party accounts; life insurance, annuities, and retirement accounts that are payable on death to someone other than the decedent’s estate; and property titled in the name of a decedent’s revocable trust. A decedent’s last will and testament does not control the distribution of non-probate assets, even if the will contains contrary provisions dealing with the specific asset.
Probate is not necessary for all estates. In Minnesota, estates valued at $75,000 or less with no real estate do not have to be probated. Instead, the estate may be administered through what is known as an Affidavit for Collection of Personal Property. The probate code allows a person who is the successor of the decedent (heir, devisee, etc.) to collect the decedent’s clothing, vehicles, bank account funds, and other personal property without being formally appointed as Personal Representative. Assuming that the estate is comprised of real estate or exceeds $75,000 in value, a probate proceeding must be started.
Commencing Probate
Probate comes in a variety of flavors. Probate can be informal, formal, unsupervised or supervised. Informal probate proceedings are commenced by filing an application for informal probate with the county’s Probate Registrar. In addition to the application, itself, you must also file a copy of decedent’s death certificate, the original will, if available , and various other documents. The Probate Register will review the application to determine whether it is appropriate to admit the decedent’s will for probate and to allow an informal administration of the estate. Although an informal probate is generally easier and less expensive than a formal proceeding, there are situations where a formal proceeding may be desirable or even required. A formal probate may be advisable where:
(1) the identities of heirs or devises of the estate are unknown;
(2) the location of heirs or devisees are unknown;
(3) property will be distributed to a minor;
(4) disputes among the heirs or devisees are likely to occur;
(5) the validity of the will is in question;
(6) the terms of the will are in dispute;
(7) the estate owns real property that will be distributed to a class of persons that need to be determined by court order;
(8) the estate is insolvent, meaning the estate’s debts exceeds its assets.
A formal probate is commenced by filing a petition with the district court for formal probate and appointment of a Personal Representative. Formal probate may be unsupervised or supervised. In an unsupervised probate, the Personal Representative can pay bills and distribute assets without approval of the court; however, any interested person, including the Personal Representative, may petition the court to settle a dispute or review an act of the Personal Representative. The Personal Representative can mitigate liability by seeking court approval of his or her actions. In contrast, a formal supervised probate is where the court exercises ongoing supervision of the estate until final distribution of its assets. Court approval is needed for any distribution of the estate’s property to heirs or devisees. While a probate proceeding can be changed from unsupervised to supervised, you cannot convert a supervised probate into an unsupervised probate.
After the application or petition has been accepted, notice of the proceeding must be given by mail to interested persons and published in a local newspaper once a week for two consecutive weeks. Assuming no objections are received, Letters Testamentary will be issued from the Probate Registrar. The Letters Testamentary grant you authority to act on behalf of the estate.
Personal Representative Duties and Powers
A Personal Representative is the same thing as an executor, but Minnesota uses the term Personal Representative. Just because you’ve been named a Personal Representative in someone’s will does not mean you have to accept the nomination. Anyone can decline a nomination to serve as Personal Representative. Most wills nominate a backup or successor for this role. If no successor Personal Representative has been named in the decedent’s will, a qualified individual may seek appointment as Personal Representative, subject to persons having priority for appointment under Minn. Stat. § 524.3-203, such as a devisee, surviving spouse, or child of the decedent.
Okay, but let’s assume that you want to accept your nomination, that you’ve commenced probate, and that you’ve been formally appointed by the court to serve as Personal Representative. What does the job entail?
As Personal Representative, you will have the same power and title over the estate’s property as an absolute owner would have, except that your power must be used for the benefit of creditors, heirs, and other interested persons of the estate. Your primary duty is to gather the decedent’s probate assets and timely distribute those assets in accordance with the terms of the decedent’s last will and testament (or the laws of intestate). Until final distribution, the probate assetsmust be properly managed and preserved. For example, as a Personal Representative, you do not want to become liable for failing to collect rents or allowing property damage to occur.
If you have special skills, knowledge, or experience, you will be expected use those things during your administration of the estate. Your conduct will also be judge in light of those special skills, knowledge, and experience. A personal representative is considered a fiduciary of the highest order in Minnesota. As such, you can be held liable for damage or loss resulting from a breach fiduciary duty; however, a Personal Representative typically won’t be held liable for acts taken in good faith.
Personal Representatives are entitled to reasonable compensation under statute. There is no bright line rule for what constitutes “reasonable compensation”. Factors relevant to determining a Personal Representative’s compensation include (1) the time and labor required to administer the estate; (2) the complexity and size of the estate; (3) novelty of problems involved in administering the estate; and (4) whether you have any special skills used in the administration of the estate. Compensation is usually based on an hourly rate. Hourly rates typically range between $45 and $110, but can exceed $200 per hour in some circumstances.
The Inventory and Appraisement
Within six months after appointment, or nine months after the death of the decedent, whichever is later, a Personal Representative must complete and file with the court an inventory of the estate. The inventory must be reasonably detailed, describing the fair market value of the estate’s assets as of the date of the decedent’s death. The inventory should also list the type and amount of any encumbrances on the probate assets, such as a mortgage. A copy of the inventory must be mailed to the decedent’s surviving spouse, and any persons entitled to receive distributions from the estate. The Personal Representative must prepare a supplemental or amended inventory if he or she learns that the original inventory is misleading because property was omitted or incorrectly valued.
There is no express requirement that you obtain an appraisal of estate property; however, appraisals are advisable when the size of the estate requires tax planning and you want to clearly establish the value of the asset and its stepped-up “basis”. An appraisal may also be necessary to resolve a dispute between the Personal Representative and a distributee regarding the value of an asset and whether or not the distributee received his or her full share of the estate.
Creditors’ Claims and Costs of Administration
Besides inventorying the estate’s assets, one of your main jobs as a Personal Representative is paying valid claims against the estate, such as the decedent’s outstanding medical bills, funeral costs, credit cards, utility bills, and other creditor’s claims. These expenses, along with taxes and costs of administration, must be paid before final distribution of the estate.
Minnesota law requires that notice of the proceeding be given to all creditors by publication in a local legal newspaper. The notice must state the name and address of the personal representative and notify creditors that claims must be presented within four months or their claim could be barred forever. The published notice is really meant to notify unknown creditors of the estate. For that reason, the Personal Representative must also deliver or mail a copy of the notice to known creditors of the decedent. Known creditors must submit their claim to the estate within 4 months of the published notice or one month after receipt of the notice directed to them, whichever is later. Regardless of proper notice, most creditor’s claims are barred if not presented one year after the decedent’s death.
Notice should also be given to the Commissioner of Human Services if the decedent received public assistance that would subject the estate to a claim. After receiving notice, the Department of Humans Services will send a letter confirming the existence of a claim, or lack thereof, related to benefits paid to the decedent for Alternative Care, General Assistance Medical Care, and Medical Assistance.
As the Personal Representative, you will also be responsible for preparing the decedent’s final income tax return and, if necessary, preparing an estate tax return. Federal and state law hold the Personal Representative personally liable for income and estate taxes if funds were distributed without reserving enough to pay the tax liabilities.
Valid creditor’s claims should be paid; improper claims should be denied. And claims may be partially allowed and partially denied. A claim will be deemed allow if you do not respond to the creditor within two months of receiving its statement of claim. Care should be taken to ensure that all improper claims are denied. However, you can pay claims that you know are valid without waiting for the creditor to present its statement of claim.
Closing the Estate
One of the first things you should have done after being appointed as Personal Representative is open a bank account in the name of the estate. All financial transactions concerning the estate should go through this account. When it’s time to close the estate, a Final Account of your administration will be furnished to all of the distributees. It is important to keep track of all receipts, invoices, and supporting documentation related to expenses of the estate. This includes a written log describing the dates, times, and services you performed for the benefit of the estate. At the end of the day, you want to be able to justify every line item on the Final Account. Running all receipts and disbursements through the estate checking account will enable you (or your attorney) to easily trace and verify the line items on the Final Account.
The remainder of the estate—all assets remaining after payment of valid claims and costs of administration—will be distributed in accordance with the terms of decedent’s will or the laws of intestate succession. Distribution may be as simple as writing checks from the estate checking account, but many times the residue will include physical assets such as cars, personal property, and real estate. It would be usual to liquidate all the property in an estate and distribute cash. To the extent that physical property exists, those assets can be distributed to specific persons. This is known as an “in-kind” distribution. However, property may be sold and the proceeds distributed as cash if a distributee objects to the proposed in-kind distribution.
When closing an informal probate proceeding, it is recommended that a plan of distribution be prepared and served on the distributees. The plan will become binding upon the distributees if they fail to object within 30 days. Thereafter, a statement to close can be filed with the court. The Personal Representative must serve the Final Account and statement to close on the distributees and unpaid creditors. Alternatively, a probate proceeding can be closed formally by seeking court approval of the final account and plan of distribution. Closing the estate formally protects the personal representative from subsequent claims based on actions that were approved by the court. Supervised probates cannot be closed, nor assets distributed, without court approval.
Conclusion
At some point in each of our lives we will be asked to serve as a Personal Representative for one of our deceased loved ones. Your job, as Personal Representative, will be to inventory the estate, pay valid claims, and timely and expeditiously distribute the assets in accordance with the decedent’s wishes. Whether you chose to take on that responsibility is ultimately up to you; however, probate is nothing to fear, especially with the help of an attorney experienced in estate administration.
The information provided in this article is not intended to and does not constitute legal advice. The statements herein are for general informational purposes only. Should you have a question about your specific situation, it is recommended that you consult with a licensed attorney or other professional.
Chris Kamath is an associate attorney with Gislason & Hunter who focuses his practice in the areas of Estate Planning, Agricultural Law and Financial Law. Chris is dedicated to helping families and businesses achieve their best possible future through estate planning, succession planning and dealing with tax issues. Chris can be reached at ckamath@gislason.com or 507-387-1115.
1 A Probate Registrar is a person designated by the court to perform various functions of a “registrar” under Minnesota’s Uniform Probate Code, such as issuing Letters Testamentary.
2 If a person dies without a valid last will and testament, their estate will be distributed according to Minnesota’s intestate laws. Discussion of the laws of intestate is beyond the scope of this article; however, in general, intestate property passes to the decedent’s surviving spouse or, if none, to the decedent’s descendants in equal shares by right of representation.
