Many businesses, from banks to consignment shops, hold money or property that belongs to their customers. When the customer dies, this property becomes part of their probate estate.
If the estate is under $100,000, the family can sometimes gather the estate assets without going through probate if they provide a “small estate affidavit” to the organization holding those assets. A new law this year has changed the landscape on small estate affidavits.
The change arose out of the limitations of the old small estate affidavit. Families had to swear that all the decedent’s creditors were paid, apart from final expenses. This could force a family to open a probate estate if they could not pay the estate’s creditors out of pocket.
With small estates, opening a probate case is usually bad for all involved. It’s expensive for the family, it delays payment for the creditor, and it creates uncertainty and compliance costs for the custodian of the property. Further, the custodian of property was only shielded from liability if the affidavit strictly complied with each of the statutory requirements.
Public Act 98-836, applicable to all deaths from Jan. 1, 2015, onward, makes things simpler for all parties transacting in small estate affidavits. Banks, businesses and other custodians of property are protected so long as the affidavit “substantially complies” with the statute. Most importantly, the estate does not need to have paid all claimants before collecting property. As long as the affidavit lists the creditors and the amount of their claims, the custodian of property may transfer it to the decedent’s representatives. There are also new formalities and notices in the affidavit to impress upon family members the importance of paying creditors before divvying up the estate.
Businesses encountering the new small estate affidavit should pay attention to paragraph 7, where the decedent’s representative will have to list all creditors’ claims. Businesses should also ensure that the affidavit has been notarized, and should have a copy of the statutory form affidavit (currently available through the Secretary of State Office) to ensure that the affidavit they have received substantially complies with the legal requirements.
While the new law should make things easier for businesses presented with small estate affidavits, there will still be cases where such transfers are problematic. For example, there is no guidance yet on what discrepancies in the affidavit are OK under the standard of “substantial compliance.” When in doubt, proceed with caution and possibly seek a legal opinion. Nobody is required to turn over property when presented with a small estate affidavit. If something is amiss, it may be better to wait for a probate estate to be opened.
There are also circumstances where the family may be unaware of the decedent’s account. Inactive accounts must be maintained for years before the bank, business, or other custodian can close them out. Most property and funds are deemed abandoned after the account is inactive for five years with no contact from the owner. The Uniform Disposition of Unclaimed Property Act then requires the custodian of the abandoned property to fill out a report and eventually transfer the property to the state treasurer.
Managing the transfer of a decedent’s accounts to their family can be a difficult process, but especially so for the family. Businesses should protect themselves by ensuring that they only turn over estate assets through the proper legal channels. Doing so in a balanced manner that treats the family with respect is not only kind, but can also help your business grow in the esteem of the family and the greater community.
• Gregory J. Barry is an attorney with Zukowski, Rogers, Flood & McArdle in Crystal Lake. Reach him at 815-459-2050.