Are Probate Laws Same in All States?
Dear Liz: Are laws regarding probate the same in all states? Do all estates have to go through probate upon the owner’s death, or does the estate go through probate only if it is above a certain value? If the rules vary by state, how do I find out the procedures for my state?
Answer: Probate is the legal process in which a court oversees the distribution of a dead person’s property.
The basic process is the same in every state: Assets are identified, creditors and taxes are paid, fees are distributed to attorneys, appraisers, accountants and others handling the estate. Whatever remains is distributed to the heirs.
You can avoid probate in all states by taking certain actions, such as creating a living trust or holding all your assets in ways that bypass probate, such as joint tenancy.
Otherwise, the rules about which estates must go through full probate, and which can avoid it, vary considerably by state. Some states have affidavit procedures that allow small estates to bypass probate entirely, but the definition of “small” ranges from $5,000 in New Jersey to $150,000 in Wyoming.
Other states offer simplified probate procedures for certain estates. In California, for example, estates worth $100,000 or less can qualify. California also has a “community property petition” that allows property of any amount to be transferred to a surviving spouse without going through full probate.
The Nolo Press Book “Plan Your Estate,” by attorneys Denis Clifford and Cora Jordan, includes a brief summary of state probate laws. You’ll find more complete details for each state in Nolo’s “8 Ways to Avoid Probate” by Mary Randolph.
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Be Cautious with Reverse Mortgages
Dear Liz: This is not a question, but a comment on a recent column regarding reverse mortgages. Although your information was factual, reverse mortgages are not a prudent choice and should be considered as a last resort only. I investigated this option for my parents, and the fees are unbelievable: a minimum 2% origination fee and an annual 0.5% service fee to send out their checks. This does not factor in the other closing costs (title, escrow, appraisal, etc.). If you understood the usury involved by the lenders, you could not recommend it in good faith.
A: The fees that come with reverse mortgages can be steep compared with a conventional mortgage, which is why it may not be the best option for many borrowers.
That’s one reason borrowers applying for a federally insured reverse mortgage must undergo special counseling to help determine whether these loans are the best choice. You can call the Department of Housing and Urban Development at (800) 569-4287 for a referral to a HUD-approved housing counseling agency.
Origination and servicing fees can vary substantially from lender to lender. That is why it’s important to shop around to get the best deal.
The earlier column mentioned the AARP booklet “Home Made Money,” which you can download from its website (www.aarp.org) or order by calling (800) 209-8085. If you have any questions after reading the booklet, you can call the same number to be directed to the AARP Foundation’s Reverse Mortgage Education Project.
You might also check out the website maintained by National Center for Home Equity Conversion, an independent, not-for-profit organization that provides consumer information at http://www.reverse.org .
Reverse mortgages can be a prudent option for elderly homeowners who want to remain in their homes, but you’re right that they should understand the costs before they proceed.
About Reverse Mortgages
Q: My mother, who just turned 77, lives on Social Security. Although she’s grateful for her checks, they’re just not enough to ease her financial worries. I am able to help her pay for some of her medications each month, but she still barely makes ends meet. She invested in an IRA while she was working, but this year she will draw the last of her money from that account. Is there a safe and smart way she could borrow money against her house, which is paid off? Would she have difficulty getting a loan because of her age?
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A: There’s at least one kind of loan where your mother’s age will actually help her get more money than she might otherwise: a reverse mortgage.
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Reverse mortgages allow older people to borrow against the equity in their homes and receive either a lump sum or a monthly check. The older you are, the larger the amount you can typically receive. If your mother’s home is worth $200,000, for example, she could boost her monthly income by $699 to $777 with a reverse mortgage. If she were 10 years younger, the amount she would get could be as low as $319 a month.
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These payments would continue until she dies, sells the home or permanently moves out, at which point the loan must be repaid. Typically, the repayment comes from the proceeds of selling the house; any remaining equity in the home would go to her heirs.
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AARP has a free booklet about reverse mortgages called “Home Made Money” that you can download from its Web site (www.aarp.org) or order by calling (800) 209-8085. You might also check out Tom Kelly’s book, “The New Reverse Mortgage Formula” (2005, Wiley Publishing) for help in evaluating the various reverse mortgage products.
What Happens to Personal Loans After Lender Died?
Q: My mother passed away last year. She lent several thousand dollars to a woman who now says that she doesn’t have to repay because my mother is dead. I have the contract the woman signed to get the money, but this person told me, “Tough luck.” Can she get away with this?
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A: Only if you let her.
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The money is still owed to your mother’s estate unless she specifically wrote in the loan document that the balance would be erased on her death, or forgave the debt in her will or living trust, said Los Angeles estate planning attorney Burton Mitchell.
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It doesn’t sound like that was the case, so the loan is considered an asset of the estate like any other asset.
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“Tell the borrower, ‘Good try,’ ” Mitchell said.
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You should write a letter to the debtor explaining that the loan is still valid and demand payment. If the woman refuses to honor her commitment, you can consider a variety of options, including hiring a collection agency or suing her in court for repayment. (If the amount is small enough, you may be able to pursue the case yourself in small claims court; otherwise, you probably should hire an attorney for help.)
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But don’t delay. Each state has a time limit on how long a borrower can be sued over a debt, and you don’t want that limitation to expire before you have a chance to collect the money.
Why Estate Plan?
Dear Liz: I don’t have a question, but I want to share a personal experience that may help illustrate why people should make an estate plan.
My father died in 1982 and left my mother quite well off. Two years later, my mother remarried, sold the family farm and used the cash to build a nice home in a resort area. Two years after that, she died and my stepfather inherited her entire estate, including the nice new house.
I don’t believe either my father or my mother would have wanted this man to inherit everything instead of their children. I hope my experience may help parents to do much more diligent planning on behalf of their children, and perhaps even help children ask important questions before it’s too late.
A: Your situation is all too common. Although there’s a possibility that your parents ultimately didn’t want you to inherit, the more likely explanation is that they simply put off estate planning.
When you don’t have a will or a living trust, the rules of the state where you die dictate who gets what, and often the surviving spouse gets everything. If that’s not the outcome you want, you need to take steps now to make sure your wishes are honored.
