Minnesota Insolvent Estate Law

Posted on October 23, 2017 by jlawyer

What happens when an estate runs out of money?

When most people think of an executor’s job they imagine presiding over the distribution of a number of assets, money, personal items, even real estate. Though this is certainly true in some cases, it does not fully capture an executor’s role. He or she does not only distribute money to heirs, but must also distribute money to pay debts of the estate.

The hope is that there are enough assets to cover any liabilities, leaving something left over for family and friends, but sometimes that isn’t the case.

What happens then? To learn more about what happens when there simply isn’t enough money to go around, keep reading.

First, let’s back up as it’s worth mentioning that one of the primary duties of an executor is to pay the debts incurred by the person who passed away. Though the person is no longer around to pay the bills, his or her estate becomes legally responsible for debts entered into during the decedent’s lifetime.

What are some common examples? If the person owes money for housing, either a mortgage or rent, those payments will need to be made. The same is true if the decedent owed money for child support or alimony. These obligations do not disappear after death. Credit cards, medical bills, auto loans and many other debts must also be paid.

Things to keep in mind

Though executors are obligated to pay debts of the estate, it is important to remember that the estate is only responsible for paying legitimate debts that were created prior to the decedent passing away. If the debt arose after the person’s death it is possible that it will not be held legally enforceable against the estate. Promised charitable donations may also not be found enforceable, as these are sometimes seen as moral, rather than legal obligations.

Something else to keep in mind is that some obligations don’t need to be paid off as the debts are attached to certain items of property. For instance, auto loans follow the vehicle and it’s common for the person who inherits the property to inherit any debt associated with it.

What if the estate is running low on funds?

Unfortunately, in some cases debt has a way of piling up. When that happens, the executor may come to understand that there isn’t enough money to cover all of the estate’s debts. What do you do at that point? Pay bills randomly? Pay those that are screaming the loudest? No. If your estate lacks sufficient resources then you need to seek expert advice as there are specific rules in each state that govern the order of priority for paying creditors.

When is an estate insolvent?

An estate officially becomes insolvent when the estate has more claims (or liabilities) than it has assets to pay them. If that’s the case, then the executor needs to declare the estate officially insolvent. Be sure to work with a local probate attorney to assist with this process as it can be quite complex. If there are revocable living trusts, it is possible that they could be used to pay liabilities, though this will depend on the particular facts of your case.

In Minnesota, the law says that if an estate is insolvent that the following priority will be applied to creditors. First, any liabilities which arise after the death of decedent, such as funeral expenses, attorney fees and estate administration costs must be paid. Second, any federal taxes that are owed must be paid. Third, medical or nursing home expenses for the person’s most recent illness are owed. Fourth, medical or nursing home expenses related to the decedent’s last year of life are owed. Fifth, debts and taxes with preference under Minnesota law as well as state taxes must be paid. After that, all other claims are paid depending on how much money remains.

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.

Source: “Insolvent Estates – Who Gets Paid What When an Estate’s Debts Are More Than Its Assets?” by Deirdre R. Wheatley-Liss, published LexisNexis.com.

MN Probate | Can non-probate assets be used to pay an estate’s debts?

Posted on October 19, 2017 by jlawyer

Non-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

Why you shouldn’t put off probate | MN Probate Law

Posted on October 9, 2017 by jlawyer

MN 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

Source: http://www.mysanantonio.com/life/life_columnists/paul_premack/article/Late-Probate-of-Will-Requires-Personal-Notice-12227309.php

Contesting a Power of Attorney in Minnesota

Posted on September 7, 2017 by jlawyer

Contesting a Power of Attorney

Powers of attorney are incredibly useful documents in that they hand over important rights to allow another person to manage certain aspects of your life if and when you are unable to do so on your own.

Depending on how broad the power of attorney was written, the agent (the person on the receiving end of the power of attorney) will be able to make a number of crucial decisions on behalf of the principal (the person giving away the power). Essentially, the agent will be able to act like he or she is the principal, standing in the principal’s shoes.

Control of a Person’s Assets

What does this look like in practice? For broad powers of attorney, it can mean that the agent has the ability to control all of a person’s assets, financial accounts, financial decisions and even healthcare decisions. In these cases, the principal is truly trusting his or her life in the agent’s hands.

The agent is required to act in the principal’s best interest, but as I’m sure you can imagine, that does not always go so smoothly. In some cases, the agent may be abusing his or her powers or acting in ways that run counter to the wishes of the principal. If the principal is incapacitated and isn’t able to dispute the power of attorney on their own, what can be done? Thankfully, there are options, including a challenge by a loved one.

Power of Attorney Law

First things first, if you’re considering challenging the appointment of a power of attorney and you aren’t the person that made the appointment, you will need to gather evidence demonstrating why the principal is unable to challenge the appointment themselves. If the principal is fully aware of what’s going on and chooses to do nothing, either because he or she agrees or is simply willing to go along with the decisions of the designated agent, then it is unlikely a court will intervene.

It will be important to show that the principal is in some way incapacitated, such as being in a coma, suffering from dementia or other serious health problems. If it can be shown that the principal is unable to raise a dispute, then your chance of mounting a successful challenge increases.

Another thing to pay attention to if you’re considering challenging the appointment of a power of attorney is to see whether the proper legal formalities were followed. Was the power of attorney executed in the way required by state law? Did it include the right language? Was it witnessed by the proper number of people? Any of these flaws could be enough to attack a power of attorney designation and should thus be carefully scrutinized.

If there aren’t any formal flaws, it’s now time to turn your attention to broader abuse by the agent. In these cases, the appointment is valid, but will need to be revoked by a court. To launch a successful challenge, you’ll need to be prepared to show that the agent is abusing the authority he or she has been entrusted with. Examples of serious abuse include theft of the principal’s property, mismanagement of the principal’s assets and a neglect or disinterest in the principal’s needs. You’ll want to do your best to avoid this becoming a he-said, she-said battle and stick to objective facts, as this will improve your odds of raising a successful claim.

Challenging A Power of Attorney

Challenging a power of attorney can be quite difficult. After all, powers of attorneys are meant to withstand attack and give some comfort to the principal that the person they designate will remain the person in charge no matter what. To overcome this presumption that the principal’s selection should be upheld you will need to compile strong evidence showing that the agent has lost sight of his or her duty and that a judge should feel compelled to act.

Minnesota Power of Attorney Lawyers

An experienced Minnesota power of attorney 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.

How to Avoid Probate | The Benefits of Bypassing Probate Through The Small Estate Exception

Posted on August 31, 2017 by jlawyer

The Benefits of Bypassing Probate Through The Small Estate Exception

We’ve all heard that probate is a process best avoided, if possible. It can take time, costs money and involves prolonged contact with a court, all things most people would prefer to steer clear of. Probate can be avoided with the help of an experienced Minnesota estate-planning attorney.

The good news is that in other cases probate can also be avoided (or expedited) just because of the size of the estate.

Why would the size of the estate matter? The reason that certain small estates are exempted from certain aspects of the probate process is to avoid wasting precious resources. If a person only leaves behind a few thousand dollars, it would be unjust to spend a substantial percentage of that going through probate trying to figure out whom to disburse the money to.

Far better to let the heirs apply for an expedited process that allows them to walk away with a larger amount in their pockets and less in the probate court’s coffers.

Minnesota Small Estate Affidavit process

If inheritors follow certain steps, Minnesota law allows them to skip the probate process altogether, provided, of course, the estate clears certain financial hurdles. Under the simple affidavit process, all an inheritor has to do is prepare a short affidavit that explains that he or she is entitled to a certain asset.

The document must be signed under oath and can then be presented to a bank or other financial institution holding an asset. The bank then gets the affidavit and a copy of the person’s death certificate and will then release the asset. This simple affidavit process is possible in Minnesota only if the entire estate does not exceed $75,000. The only other rule to keep in mind is that you must wait 30 days after the person’s death to use the affidavit.

Simplified probate

Small estates can also use what is known as a simplified probate process. This less burdensome approach requires an executor fill out a written request from the local probate court asking to use the simplified probate procedure. The court will then decide whether to grant the executor the authority to distribute assets without going through all the steps usually associated with probate. The simplified process can be used in Minnesota only after the court ensures that no property is subject to claims by creditors.

Are there any downsides? So far it sounds like a universally appealing option if it’s available to you. If you are set to inherit a small estate then anything that helps reduce the time and expense associated with securing that inheritance is a great thing.

One word of warning, though it can be good to avoid the cost of paying a lawyer, if you have any concerns about the estate or the steps involved in finalizing the process, it’s better to take a moment and seek an experienced opinion rather than potentially make a mess that could cost even more money to fix down the road. Even small estates can include complicated questions that would benefit from the wisdom of a skilled estate-planning attorney.

Minnesota Probate Lawyers

Minnesota Probate Law | Disinheritance

Posted on August 9, 2017 by jlawyer

If you’re preparing to draw up a will or a larger estate plan, it’s natural to think about who you do and do not want to leave your possessions to. In many cases, people spend their time and energy thinking through what items to leave to which of their heirs.

In other cases, the energy might instead be expended not on what to leave someone, but whether to leave them anything at all. Disinheritance can be a tricky proposition, both from an interpersonal perspective and a legal one. To learn more about how the process works, keep reading.

Why disinherit?

This is an incredibly difficult question to answer generally as the decision to disinherit is quite complicated and very personal. In some cases, disinheritance occurs because of a sudden event. A nasty divorce in the family could cause a schism, a sudden recurrence of addiction, an incident of abuse, in some cases, it may be a particularly upsetting argument. Other times, the disinheritance is the product of years of issues and estrangement that have gradually gotten worse, prompting the person making the will (the testator) to finally decide that enough is enough. Each instance of disinheritance is different given the complex personal relationships wrapped up in such decisions.

Who can and can’t be disinherited?

You may think that because the money is yours you can do with it what you want. While that’s generally true, there are some limits that are worth keeping in mind. Across the U.S., the rule is that you cannot disinherit your spouse. One exception is if your spouse agrees to be disinherited, either in a pre- or post-nuptial contract, then it might be possible. Even in the case of a prenup, disinheritance isn’t allowed in Georgia, where everyone is entitled of at least one year of support following the death of their spouse. It should be noted that these rules only apply to current spouses. Recent divorces don’t count and former spouses can be safely disinherited.

What about children? In almost every state in the country you can disinherit children as you wish. The only limitation occurs in Louisiana, of all places. The law in Louisiana says that a parent cannot disinherit children who are younger than 23, who have mental or physical incapacity or who are incapable of taking care of themselves. Except for these very narrow circumstances, disinheritance is legally acceptable.

Beyond these restrictions, the general rule is that you can disinherit whoever you like. It’s your money, and you can control who gets it (and who doesn’t).

Is disinheritance the right call?

Though disinheriting your child (or grandchild, or other relative) may be legally acceptable, that doesn’t necessarily mean it is socially acceptable. Saying you want to disinherit someone sounds easy enough, but can be much more difficult in practice. To make such a bold move is almost assured to damage, often irreparably, your relationship with the person being disinherited. It’s also likely that the ripple effects will extend beyond this person, perhaps harming your relationship with that person’s close friends and family who disagree with your decision. Before making the movie, think long and hard and be sure this is a decision you’re ready to own.

Other options besides disinheritance

Rather than take what some consider to be the nuclear option of disinheriting a loved one, another solution worth considering is creating a trust. How does a trust help in this situation? Rather than simply writing the person off, a trust can be used to control the heir’s inheritance, creating limits that prevent the person from using all of the money at once. You can use the trust to creative incentives for working or going to college or staying drug free. You can also place others in charge of disbursing money to the heir, ensuring that the loved one never has direct access to the asset.

An experienced Minnesota probate lawyer can help walk you through the complicated process of establishing a workable estate plan. 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.

Source: “How to Disinherit Loved Ones—And Which You Can’t,” published at CNBC.com.

Minnesota Probate | Payment of Bills of the Deceased

Posted on April 28, 2017 by jlawyer

In a Minnesota probate, the property of a decedent (the deceased person) passes at his or her death to the people named in the will (or Trust) or the decedent’s lawful heirs. The property is also subject to a spousal elective share right, expenses of administration, and “rights of creditors”. In this article, we are going to discuss the “rights of creditors” or how to properly pay the last bills of the deceased.

Payment of Creditor Claims

The claims provision of the Minnesota probate code “balance” the laws incentive to distribute the decedent’s estate against the right to be repaid lawful debts. As an aside, the law is also clear that estate’s are supposed to be “wrapped-up” as quickly and efficiently as possible while still protecting the rights of those who claim an interest in the deceased’s property.

Below are some initial steps that a personal representative (often referred to as an “executor”) should take when dealing with debts of the estate:

Identify the Creditors: the personal representative needs to make a list of all parties to whom the deceased may have owed money. The names and addresses of the parties should be provided to the probate attorney so that proper notice of the existence of the estate can be given to the parties.
Identify the Nature of the Debt: the personal representative should figure out if the bill is justified and valid. If not, the bill can be contested or potentially reduced.
Provide a Mechanism for Resolving Disputes: the personal representative should work with the probate attorney to discuss how to resolve any bill disputes;
Determine the priority of the various parties who may be entitled to some of the decedent’s property;
Determine a method of payment of the bills of the deceased.

Minnesota Law

The law associated with creditor claims, for the most part, is contained in Minnesota Statutes 524.3-801 through 524.3-817. Please review the specifics of the law for details on payment of creditor claims.

The definition of what constitutes a “claim” is contained in Minnesota Statute § 524.1-201(8). The law provides that “claims include liabilities of the decedent whether arising in contract or otherwise,” and/or “liabilities of the estate which arise after the death of the decedent including funeral expenses and expenses of administration.”

Free Initial Consultations

Contact the Flanders Law Firm today. The firm offers free consultations to all potential clients. Call (612) 424-0398.