November 18, 2009

5 Tips for Dealing with Claims: Tip 3

3. Last time I talked about how you can minimize the claims period by giving notice. If things break correctly, maybe the creditor won't even file the claim.

But sometimes a creditor does file the claim -- informally, by sending it to the personal representative or his or her attorney instead of filing it with the court. The personal representative can then send a "Disallowance" of the claim to the creditor, using the procedures set forth in Section 18-11(b) of the Illinois Probate Act. The Disallowance can cut the time for the creditor to file his or her claim with the court, to two months from the time the Disallowance is sent to the creditor.

Posted by Joel A. Schoenmeyer | | Email This Post

Posted In: Probate - Illinois Law

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November 17, 2009

5 Tips for Dealing with Claims: Tip 2

2. Tips 2-4 are similar in that they all require that you (the personal representative) do a full-court press to deal with the claims. This is somewhat counter-intuitive -- I think we're all familiar with the idea of a defendant (like in a foreclosure action) who delays, delays, delays. We want to do the opposite here, since here we're dealing with a notice requirement, and statutes of limitations. Basically the personal representative has to give:

-actual notice (via letter) of the probate to the decedent's known (or reasonably ascertainable) creditors; and

-notice via publication of the probate to all other ("unknown") creditors.

(See Section 18-3 of the Illinois Probate Act for details.) Having to give notice is the bad part. The good part is that the statute of limitations expires in 3 months (for creditors given actual notice) or 6 months (for creditors given notice by publication). If a creditor doesn't file his or her claim within those periods, the claim is barred.

Tip 2: You can and should give or publish notice in a way that minimizes the "window" during which creditors may file claims. To do so, you immediately publish notice once the probate is opened, then wait three more months and give written notice to all creditors you know of (after making a reasonable search by reviewing the decedent's papers and mail).

You would be surprised by how often creditors simply fail to file their claims within the above periods. This is especially the case with large creditors, where notice may get "lost in the shuffle."

Posted by Joel A. Schoenmeyer | | Email This Post

Posted In: Probate - Illinois Law

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November 16, 2009

5 Tips for Dealing with Claims: Tip 1

1. The first thing you have to ask yourself is, "should we even open a probate estate right now?" If a decedent's estate appears insolvent (that is, the value of the potential claims exceeds the value of the decedent's property), maybe you never open an estate. Or, maybe you wait for two years to open it. Two years is the magic number because, under Section 18-12 of the Illinois Probate Act, most claims are barred as of that date (even if no probate was opened).

The question in these cases is whether the hardship (of not opening the estate for two years) outweighs the benefit (potential claims avoidance). Opening a probate estate, and getting a personal representative appointed, means that someone is entitled to deal with the decedent's property (including sell it). But some families are in a position where the money isn't needed ASAP, and the status quo is fine. In those cases, no probate for two years may mean the claims all go away. (Creditors can in some situations open a probate estate, but most creditors don't want to go to the trouble to do so.) For instance:

Tom dies owning a $200,000 bank account. Tom owes $30,000 in credit card bills. Upon Tom's death, his Will gives his property to his two siblings, Jean and Janet. Jean and Janet can:

-open an estate now, knowing that they'll get $170,000 (because the credit card company will probably file a claim); OR

-let the bank account sit for two years, hope that the credit card company doesn't seek to open the probate estate on their own, and then open a probate once the two years have passed. If all goes according to plan, Jean and Janet get the full $200,000.

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November 13, 2009

5 Tips for Dealing with Claims: Introduction

This post starts a series regarding reducing (or minimizing) claims in the probate estate context. A couple of notes before I begin:

1. The claims I'm talking about here are your "typical" claims in probate, for a decedent's debts -- things like credit card bills, medical bills, and the like. I am NOT addressing secured claims (like the mortgage on a decedent's home), government claims, or claims for administrative expenses (post-death claims like funeral expenses or attorney fees). That's because there's very little, if anything, you can do to reduce these types of claims.

2. Different people have different views about debt. Some people feel like a debt is a debt -- if the decedent owed it, and it's a valid debt, it must be repaid. Others feel like, "the creditors have their team of experts trying to maximize what is owed -- I need to have someone on MY side." I don't always agree with the latter view, but it's at these people that this series is directed. My feeling is that I'm a lawyer, not an ethicist. I will tell you what the law allows, and it's up to you to decide how far you wish to go.

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November 12, 2009

Wall Street Journal on Will/Trust Programs

People often ask me things like, "Can't I do my Will on my own, using a computer program? Isn't it just a form?"

The answer to the second part of that is easy -- not, it's not just a form. As for the answer to the first part, I don't know. There's no reason for me to spend money buying one of these programs just so I can review it.

Today's Wall Street Journal features a comparison of a few Will/Trust computer programs (here), as part of its "Cranky Consumer" series. The biggest program with the article is that it leaves out the most important question: did the documents accomplish what they were supposed to? By "supposed to," I mean "do the documents leave property to desired beneficiaries in the most efficient manner, with no ambiguities and the fewest tax consequences, and are documents valid under the relevant state law." And yet the article completely ignores this -- here's how it ends:

Each site purports to yield documents that clearly outline our intentions in the event of our demise or death, although we didn't hire a lawyer to review them. We're hoping that we—and our heirs—won't have to worry about it any time soon.

There you go -- the author has spent $X on these programs, and has no idea whether they do what she wants them to do.

Posted by Joel A. Schoenmeyer | | Email This Post

Posted In: Wills and Trusts

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November 11, 2009

The QTIP, Part 3

(This is the third and final post in a series. Links: part 1 and part 2.)

As I said at the end of my post in part 2, we have a problem when the federal exemption amount and the Illinois exemption amount are different. That is the case right now, where the federal exemption amount is $3.5 million and the Illinois exemption amount is $2 million. To take the example I referenced (of a $5 million estate):

$3.5 million to family trust (no estate tax on this, ever, because it equals the exemption amount)

$1.5 million to marital trust (no estate tax on this because of marital deduction; will be taxable in surviving spouse's estate)

But if you set up your trusts like this, then you will owe Illinois estate tax, since $3.5 million exceeds the Illinois exclusion amount ($2 million).

The solution? The Illinois QTIP, which was added by Public Act 96-0789, which is here. In a sense, this allows you to bifurcate the Family Trust, so that we have three pots instead of two:

Family Trust #1: Holding $2 million – free from federal and Illinois estate tax forever

Family Trust #2: Holding $1.5 million – free from federal estate tax forever; free from Illinois estate tax at the death of the first spouse (but includable in the estate of the second spouse for Illinois estate tax purposes)

Marital Trust: Holding $1.5 million – free from federal and Illinois estate tax at the death of the first spouse (but includable in the estate of the estate of the second spouse for federal and Illinois estate tax purposes).

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Posted In: Estate Tax

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November 5, 2009

State Death Taxes

Ordinarily I hate using the phrase "death taxes," but I'll make an exception here because:

1. "State estate taxes" is a horrible phrase to utter; and

2. "State estate taxes" really isn't accurate, since some states have an inheritance tax (in place of or in addition to an estate tax).

Anywho, over the weekend the Wall Street Journal had a nice article by Laura Sanders entitled "State Death Taxes Are the Latest Worry." Here is the link. (By the way, unless you want to be depressed about the future of civilization, don't read the comments.)

The issue relates a bit to what I discussed in my last post about the QTIP (here -- oh, and part 3 of that series should be up next week). If the federal exemption amount is set at $3.5 million, very very few estates will need to pay the federal estate tax (according to the article, at the current level only 5,500 estates per year are subject to tax).

But if you have a state that imposes an estate or inheritance tax, they may do so at a much lower exemption amount. Illinois is at $2 million. Some states are even lower than Illinois -- $338,333 for Ohio, and $1 million for New York and many other states.

We then get two "problems":

1. Will states compete for residents by lowering their inheritance/estate tax rates? I don't actually think this is a problem (which is why I put that word in quotes above) -- the libertarian in me thinks that's just good, healthy competition. And I have to think that, for most people, non-death tax considerations are king. You literally couldn't pay me to live in most of the states with no death taxes.

2. The bigger question: How do we deal with situations where a decedent has ties to more than one state, and the states fight over the decedent's assets? The article mentions the estate of John Dorrance (described as "Campbell Soup magnate") -- New Jersey and Pennsylvania both said he was domiciled in their state, and his estate wound up having to pay taxes in both places. Yikes!

Posted by Joel A. Schoenmeyer | | Email This Post

Posted In: Estate Tax

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November 3, 2009

Unpaid Child Support in Probate

Over the past 10 or 20 years, Illinois has worked to make it easier for ex-spouses to collect unpaid child support. Two ways in which this is done:

1. Section 12-108 of the Illinois Code of Civil Procedure, which eliminates the statute of limitations for child support. ("Child support judgments... may be enforced at any time."); and

2. Sections 2-1303 and 12-109 of the Illinois Code of Civil Procedure, which indicate that interest judgments SHALL accrue at 9% per year.

You should view probate as another (and your last) bite at the apple if you have a claim against someone. So, a woman might sue her ex-husband's estate for unpaid child support if there's an unpaid balance at his death, even if the balance is from many years ago. How might that play out? From my experience, here are the issues that will arise:

-Is the claim in any way barred, by the statute of limitations or by another theory (like equitable estoppel or laches)? You would think that this is a moot point, given the language of 12-108 mentioned above, but that language was only added in 1997. Is it possible that unpaid child support from prior to that date cannot be collected? Unlikely. The closer issue involves unpaid child support that became barred prior to 1997 (when there was a 20-year statute of limitations on child support). My experience is that the court will still require payment from the decedent's estate.

-Is interest a sure thing? No it isn't, at least not in the 1st District of Illinois. Yes, there's "shall" language in 12-108. But there is a long line of cases -- including, most recently, the case of Illinois Department of Healthcare and Health Services v. Wiszowaty (913 N.E.2d 680), decided on August 14, 2009 -- in which courts have stated that judgments in divorce-related proceedings (including judgments relating to child support) are not subject to mandatory interest. Rather, interest is at the discretion of the judge (although, if granted, the interest must be paid as set forth in the statute).

Posted by Joel A. Schoenmeyer | | Email This Post

Posted In: Probate - Illinois Law

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