Non-Probate Assets in MinnesotaNon-Probate Assets in Minnesota

Last week we discussed what happens when an estate runs out of money. When this happens, an estate is seen as insolvent, meaning the assets are not sufficient to cover the liabilities owed. In these cases, money is distributed according to a pre-established hierarchy and when it runs out, it’s gone. But what happens if there are assets beyond those in the estate? Can they be used to pay off the estate’s debts? To learn more keep reading.

First, why would there ever be assets that are not part of the estate? The reason is because some assets are seen as non-probate assets and pass outside of the probate system. This happens most often with assets that have what are known as designated beneficiaries.

Designated Beneficiary Law

What is a designated beneficiary? A designated beneficiary is someone who was named as the person to whom an asset will pass should he or she survive the decedent. When you list someone’s name as beneficiary on an IRA, 401(k), life insurance policy or bank account, this makes them a designated beneficiary. In these cases, and those involving pay-on-death or rights of survivorship accounts, the assets pass directly to the named beneficiary. This happens entirely outside of the probate process and results from a contract between the decedent and the financial institution. Because no probate court is involved, these are referred to as non-probate assets.

Insolvent Estates

So what happens if an estate is upside down, but there are non-probate assets with money that could be used to cover some of the debts? Are the non-probate assets up for grabs? Surprisingly, the answer is not always so clear. Recently, Texas passed a new law that says that assets from multi-party accounts that pass outside of the probate process are liable for the debts of an estate. The problem is that the Texas law doesn’t do a very good job of explaining how this should work in practice. The issue is that though these funds may be used to pay debts of an estate, the executors may not have any access to the funds as they were lawfully distributed by the financial institutions directly to the beneficiary. Unless the executor acts quickly and notifies the financial institution that funds are in dispute, it may be too late as they money could already be spent. Should that happen, the Texas law says nothing about how the executor should go about recovering money from the rightful beneficiary.

In Arizona, the law is similar. The legislature there said that non-probate assets can be used to pay a decedent’s debts, but only in cases where the estate’s assets are insufficient to cover its liabilities. In those cases, the beneficiary of the non-probate asset would be held legally responsible for satisfying debts up to the value of the money received. That means if a beneficiary received a bank account worth $10,000, he or she could be on the hook to pay up to $10,000 in debts of the decedent’s estate.

Creditor Claims (Debts of the Deceased)

In other states, non-probate assets are seen as not being part of the estate and thus cannot be claimed by creditors, even if the estate is insolvent. According to the Minnesota Department of Revenue, assets that are payable upon death are not part of the state’s probate process. As a result, the DoR goes on to say that named survivors inherit these non-probate assets, which are not applied to the deceased person’s debts. Examples given of such non-probate assets including things like property with a right of survivorship, insurance proceeds, annuities, pensions, retirement accounts and accounts that are payable upon death.

Minnesota Probate Lawyers

An experienced Minnesota probate lawyer can help walk you through the probate process, answering questions along the way. For more information on estate planning in Minnesota, along with a variety of other topics, contact Joseph M. Flanders of Flanders Law Firm at (612) 424-0398.

Minnesota Formal ProbateMN Probate Law | Why you shouldn’t put off probate

It isn’t uncommon for people to disregard the advice of experts, lawyers included. No matter how many times an attorney says you should take certain steps to address looming problems, there will be those who choose to ignore the advice. Some people aren’t ready to face their issues head on, others are afraid, others may not be aware and some are just downright lazy. Whatever the reason, procrastinating when it comes to estate planning issues can cause serious trouble that then takes time and money to undo.

Rather than simply reiterate the same warnings about the need to act fast, it may be helpful to try a different approach. A recent advice column in the San Antonio newspaper dealt with a probate question from a woman in Texas that exemplifies why dragging your feet rarely pays. In her case, had she not put off the legal issue she would be in a much stronger position today. Instead, she must now hire a lawyer and hope that she succeeds in an effort to unravel the mess that was made by inaction.

The case begins back in the late 1980s, when the woman’s first husband passed away. It was a sad time, for her and her children who had just lost their father. Understandably, she was not very focused on legal obligations, instead worried more about caring for her children and putting the pieces of her life back together. As a result, she never bothered to probate her husband’s estate. Though he had a will, there were few assets to be dispensed with, just their marital home that the two owned together. The will made clear that her husband wanted to leave his share of the house to his wife.

The woman assumed that she did not need to do much given the language of the will, which unambiguously left the house to her. As time went on, the woman met another man and married him several years after the death of her first husband. This apparently caused some friction in the family, especially among the children of her first husband who never got along well with husband number two.

The woman recently told her children that in her will she intends to leave the house to her second husband. The children weren’t happy and appear to be willing to challenge the decision in court. The woman then wrote into the newspaper asking for advice about what she could do to strengthen the language in her will, making it less likely that her children will succeed in challenging her decision to give the house to her second husband.

Though this seems like a fairly simply question, the author of the advice column points out that the woman made a potentially very costly mistake years ago that will now haunt her. By not probating her first husband’s estate, she inadvertently gave her children the legal ammunition they need to challenge her plan to give the house to her second husband. How so?

When her husband died, he owned a half interest in the home. Though his will said that his share would pass to his wife, his wife never formalized this through probate. As a result, Texas now views him as having died intestate, meaning without a will. In Texas, the law when her husband died said that a person’s interest in property passes to his children, not his spouse. That means it’s the children who currently own half the house (along with the mother’s initial half interest).

Title Problems

Right now, if the woman tried to sell the house she wouldn’t be able to, the title company would put a stop to it without the sign-off of her children who legally own half the property. Thankfully, all hope is not lost. The woman can hire an estate planning attorney to file a late claim for probate and argue that the will should be accepted now, even decades later. Her children will have to be notified and can object, but it is possible she will get her rightful share of the house. The moral of the story for everyone should be to avoid waiting decades to solve a problem that could be addressed more easily right away. Putting things off can end up costing more time, money and worry.

Minneosta Probate Lawyers

An experienced Minnesota probate lawyer can help walk you through the probate process, answering questions along the way. For more information on estate planning in Minnesota, along with a variety of other topics, contact Joseph M. Flanders of Flanders Law Firm at (612) 424-0398.