probate – Probate in Iowa

What is Probate?

Probate is the legal process of administering the estate of a deceased person. In Iowa, the person responsible for administering the probate is the executor or administrator of the estate. This individual is appointed by the court and has several important responsibilities, including:

Collecting and preserving the assets of the estate: The executor or administrator must locate and gather all of the assets of the deceased person, including property, bank accounts, and other financial assets. They are also responsible for preserving these assets and ensuring that they are not wasted or misused.
Paying debts and taxes: The executor or administrator is responsible for paying off any debts that the deceased person had at the time of their death, as well as any taxes that are owed. This includes funeral expenses, medical bills, and mortgages, among others.
Notifying creditors and other interested parties: The executor or administrator must notify all creditors of the deceased person and provide them with an opportunity to make claims against the estate. They must also notify other interested parties, such as beneficiaries, and provide them with information about the estate.
Filing court documents: The executor or administrator is responsible for filing all of the necessary court documents to open the probate and to obtain the court’s approval of the distribution of the assets.
Distributing assets to beneficiaries: Once all debts and taxes have been paid, the executor or administrator is responsible for distributing the remaining assets of the estate to the beneficiaries.

It’s important to note that the Executor or Administrator may also have a fiduciary duty to act in the best interest of the estate and its beneficiaries. An Executor or Administrator who mismanages or steals from the estate may be held liable for their actions.

Administering an Iowa probate can be a complex and time-consuming process. It is important for the executor or administrator to be organized and to have a thorough understanding of the laws and procedures involved. They may also benefit from seeking the advice of an attorney to ensure that they are fulfilling their responsibilities correctly. (I know one or two that could help out.)

Do Assets with Beneficiaries Go Through Probate?

That’s a common question I get. Here’s the example: we are handling the probate estate for a deceased individual and we are discussing the assets: house, bank account, CD, car, etc. Then we also inquire about retirement accounts (IRA or 401(k) for example) and the client will state “oh, they had beneficiaries listed so they are outside probate”. And then that leads to my somewhat confusing answer: Sort of.

What I mean is this:

The beneficiaries listed receive those accounts directly. They are not controlled by the provisions in the Will or by intestacy (i.e., no will). The personal representative (whether executor or administrator) does not manage those accounts.
BUT, they are reported on the Report and Inventory that is filed with the court. That means we need to identify and list the account, the value at death, and the beneficiaries of that account. The part that gets people upset is that the court and probate costs (court costs, attorney fees, executor fees) are calculated on all assets (except life insurance) on the Report and Inventory. Thus, those retirement accounts add to the calculation of the costs.

Normally the next question is “why” which is harder to explain but like I told my girls when they were younger: just because. Some additional reasons are that inheritance taxes, estate taxes, and the associated returns utilize that information. So we have additional work as a result of those assets. We also typically provide some assistance on handling those items.

So, in short, they are part of the probate process but not controlled by the probate process.

New Law for Iowa Small Estates Starting July 1, 2020

For deaths of Iowa residents that occur after July 1, 2020, Iowa law now permits estates up to $200,000 in total “probate” value to use Iowa’s small estate chapter (Iowa Code chapter 635). So–as I typically ask–what does that mean?

Iowa’s small estate proceedings provide a few minor procedural differences than a “regular estate” under Iowa Code 633. Principally, the closing process is a different procedure, although most clients won’t realize the difference in procedure.

However, the main difference to clients involves court costs savings. Court costs in a small estate proceeding are significantly less than a regular estate. For example, “regular” estate court costs are approximately .2% of the size of the gross estate. Conversely, small estate court costs will typically be around $35.00. That results in an approximate savings of $365 for a $200,000 estate, or the equivalent of 60 Big Mac meals.

This also helps the situation where an individual has established a revocable trust as their estate plan structure but failed to get an asset properly titled. If the asset that wasn’t properly titled is (now) less than $200,000, the small estate proceeding can be used even if the total estate is substantially more than $200,000. Again, conversely, if you are using the regular probate proceedings and calculating court costs, the court costs would be .2% of ALL assets. So if you have a $1,750,000 estate, just the court costs to deal with a $150,000 probate asset would be approximately $3,500.00. Or 583 Big Mac meals.

Now, with typing this post, I realize I need to have a better blog post explaining revocable trusts in Iowa at Iowa Estate Plan. But, its late now so that will be another rainy day post.

Who Needs Probate: Can’t I Avoid Probate by Listing Joint Owners?

If all of your assets have a joint owner and/or a beneficiary listed, your estate may not need to go through the court-supervised probate process. But before you rush out to make those changes on your accounts, here are some things to think about joint accounts:

The other joint owner can withdraw the entire account out of the bank.
Creditors of the joint owner can zap the account and clean it all out. Think judgments, tax liens, back child support, bankruptcy, divorce, etc.
Surviving joint owner gets the entire account at death–regardless of what your estate plan provides.
Funds are reported on college financial aid applications for the joint owner.
Doesn’t provide any Medicaid planning protection.

I frequently get calls from children questioning why their parent’s estate didn’t go through probate after the parent died. If we start doing a little digging, we typically find out that at some point the parent listed another individual (typically another sibling) as the joint owner. Thus, when the parent dies, the child listed as the joint owner gets 100% of that account. Maybe they will share with the other family, but commonly they don’t. Imagine the frustration/anger when the others see the Will that provides for an equal distribution. That doesn’t mean what happened is automatically wrong, but there can certainly be questions.

For example, this can raise a question as to whether there is a cause of action for some type of improper activity in getting that person listed as a joint owner. This gets into the area of confidential relationships that you can read a little more about here or intentional interference with inheritance here.

A Will Means We Don’t Have to Do Probate, Right??

A common question that we get is “Since dad had a will, we don’t have to go through probate.” (I’ve written about this on my sister blog, but read this and save an extra mouse click.)

Not true. In order for a person’s will to “proven” it needs to be admitted to probate court. Once the Will is filed with the court, then the judge will review it to make sure it meets the legal requirements for a valid will. Requirements such as signed and in writing and witnessed by two other individuals.

Once a will is admitted to probate as a valid document, there is also the question if it was the last will of the decedent. For example, you might have a document that satisfies all of the legal requirements of a will, but what if dad signed another will several years later and forgot to tell you? Or what if you grabbed dad’s hand and forced him to sign the will that left everything to you and disinherited your siblings? Those are some examples where the probate process sorts through questions and eventually establishes that a particular will is in fact the last will and testament of the decedent.