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Monday, February 11, 2013

Does a low dollar amount mean that an estate doesn't need to go through probate?

What happens when an estate is small? Is probate waived because of the low dollar amount? Not always! A reader sent me a note about this and I thought many of you would be interested in the answer.

Here's the question:

"My mother's sister recently passed away. My mother is the sole beneficiary and the trustee of the estate. Can she pay outstanding bills prior to probate? Does she need to probate the estate, as it has a value of less than $15,000?"

Yes, an executor can pay bills prior to receiving Letters Probate. In fact, most of the time it's a good idea to do so, as it helps to avoid penalties, late fees, or interest that eventually would have to be paid out of the estate. The authority to do this comes from the will itself, rather than from the probate.

If the bills in question include a funeral bill, your mother can submit the bill directly to the deceased's bank and ask that it be paid from the deceased's account (assuming there is enough money in the account for that). Sometimes a bank will even pay other bills that are clearly the deceased's bills, but that is in the discretion of the bank itself.

If your mother pays the deceased's bills or the estate's bills out of her own money, she can claim them back for reimbursement from the estate once funds become available (again, assuming there is enough money).

If the estate is quite small, as this one apparently is, there may be no need to apply for probate. But keep in mind that dollar amount is not the only factor. The type of asset will also matter. For example, there may be a mines and minerals title in the estate that is practically worthless at present, but you still need probate to transfer it because it's registered at the land titles office.

Assuming that in your case there is nothing unusual but there is, say, a bank account, a vehicle and personal belongings, your mother most likely will not have to apply for probate. The bank that holds the deceased's account does have the right to require your mother to apply for probate, but has the discretion not to insist on the requirement when the dollar amount is small.

Dollar amounts may not be everything, but they do matter. Banks who hold the only asset of the estate in the form of a small account may waive the requirement for probate because they realize that the court fees and lawyer's fees to obtain a probate could more or less wipe out the estate. The risk to themselves is smaller as well. If a bank releases a bank account without a probate document and it's later discovered that there is another will or another beneficiary, the bank could be on the hook for the amount they released. They will often accept that risk as long as your mother signs an indemnity form.

You will not need probate to transfer personal or household goods or a vehicle.

Keep in mind that sometimes there are reasons to probate a will that have nothing to do with dollar amounts, such as questions about the validity of the will, the need to obtain tax information, or claims by third parties.

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