There are many ways to inherit assets from a decedent. No matter how complicated or smooth the process may be, if you are an heir, it is important to understand your rights. To get a clear picture of those rights, it is important to determine how you will be receiving the assets i.e., through probate or outside of probate.
Assets Outside of Probate:
Probate is the process by which title to assets, without a predestination, pass to the heirs of the Decedent’s estate. Asset which are predesignated to pass to a co-owner, or a beneficiary generally pass outside the probate process. A few good examples of this prearrangement are trusts, joint bank accounts with rights of survivorship, life insurance, retirement accounts, annuities, and payable on death bank accounts. The reason these assets pass without need for probate is because they are already predesignated to pass to the beneficiaries.
When it comes to non-probate assets, the heir has the right to immediate possession of the assets. If it is real property, such property passes immediately to the heirs. If it is an account, the financial institution is contractual bound to notify the beneficiaries and surrender the assets to them. If it is a trust, the Trustee must follow the terms of distribution in the trust agreement.
There are exceptions to this rule of immediate possession. While a financial institution may be obligated to pay to the beneficiaries, they must also ensure that they have properly identified the correct beneficiary. Similarly, a Trustee may be bound to keep assets in a trust for a certain period before payment. Thus, if a beneficiary does not get a timely payment of assets, they may not have grounds to force payment.
Beneficiary Fraud
If a financial institution or a Trustee suspects that a beneficiary was named or changed as a product of undue influence or fraud, they are within their rights to refuse payment until the question is fully settled. Typically, if there is a legitimate claim of beneficiary fraud, a financial institution will do an internal investigation to evaluate the merits of the claim.
However, if someone brings legal action against the financial institution, they will typically interplead or deposit the assets with the court and let the parties battle it out.
Inheritance of Real Property
If more than one heir inherits real property, they both generally have equal right to possess the property. This is true regardless of the percentage of ownership. The exception is if one heir inherits a life estate (the right to live in the property for life—known as the “life tenant”) and the other inheritance a remainder interest (the right to receive the property at the life tenant’s death).
If heirs inherit real property together, each heir must agree if the property is to be given, sold, or encumbered by a mortgage. In the event that heirs cannot agree, they can force the division or sale of the real property through a process called a “partition.”
Lastly, if an heir inherits real property with a mortgage, the mortgage company must speak and cooperate with the heir. However, the mortgage company is within their rights to require that the heirs prove that they are in fact legal heirs. Note that a mortgage company cannot accelerate the mortgage by virtue of the death of the decedent. The heirs will be able to pay the mortgage on the same terms that the decedent had during her life.
Assets in Probate
If assets are passing through probate, they are subject to the jurisdiction of the Court. When a probate estate is opened, the Court appoints a personal representative (“PR”). This can be the Executor named in the will or an interested party who has come forward and proven their fitness to administer the estate.
It is the PR’s job to ensure that all assets subject to probate are collected and inventoried. It is also the PR’s job to pay all claims against the estate. Therefore, the PR won’t make any distribution to heirs until all creditors have had the opportunity to make claims (creditors have a ninety-day window called “the claim period”). All claims must be paid before the heirs receive anything from the estate, unless you are a surviving spouse or minor child of the decedent. In that case, you are entitled to the first $60,000 worth of assets passing through probate if you are a spouse and $5,000 for each minor child.
Assets Can be Brought into Probate to Pay Debts
Some of the assets that are predesignated to pass outside of probate can be brought within the estate to pay off any claims. For example, a PR of an estate can petition the Court to utilize a bank account held jointly with right of survivorship between the decedent and a third party to pay off claims[1]. However, this can only be done if the estate is insolvent. Thus, it is best to hold onto real property, joint bank accounts, and transferrable on death securities accounts until the claim period is over.
A Personal Representative Can Be Removed for Wrongful Behavior
If an heir of an estate finds that the PR is acting inappropriately or criminally, they can ask the Court for the PR to be removed and to have anew PR appointed. An appointment as a PR is an appointment to a public office. As such, the PR must take an oath of office to swear and uphold the US and state constitution and abide by the laws. If the PR violates this oath, it may be considered a breach of fiduciary duty and may be grounds for removal. A few examples of a breach of fiduciary duty are failure to file timely accountings with the court, improper use of estate funds, conflict of interest, and negligence.
If you are an heir and have question or concerns, give the experienced attorneys at McIntyre Elder Law a call at 704-259-7040 or visit our website at www.mcelderlaw.com.
Brenton S. Begley
Estate Planning & Elder Law Attorney
[1] This is also true for real property and transferable on death securities accounts.
