January 19

Closing Small Estates

Ordinarily, when someone dies, the method to pay off creditors and distribute the remainder of the estate is a court-supervised process called probate.  However, when someone dies with relatively few assets, many states allow simplified procedures to close out the estate. 
Some states allow surviving family members to settle a small estate using an out-of-court “small estate affidavit.”  Other states offer an in-court “simplified probate” procedure, which is more involved than the affidavit process.  Some states (like Illinois) offer a choice between the two.  This article will describe the benefits and drawbacks of closing out estates using a small estate affidavit.

Unpopular Probate

In today’s world, probate is often viewed like dental surgery—something that is painful, expensive, and that should be avoided unless absolutely necessary.  But unlike dental surgery which ends after a few hours, probate lasts for months, or even years! 
For the unfamiliar, probate is a public court process where the will (if any) is proven, the deceased’s assets are accounted for, creditors are given an opportunity to file claims against the estate, payment of claims is made, and any remainder is distributed in accordance with directions in the will or by state law.  An uncomplicated case might take eight months to a year, and a complicated case could be much longer.  Expect at least several thousand dollars in legal fees, and possibly much more.
As painful as probate sounds, there are some benefits.  During probate, notice of court proceedings is published in a newspaper to all unknown creditors (like unknown credit card companies, other unsecured lenders, etc).  Those creditors are given a limited period of time to file any claims against the estate.   Once that period is over, they are forever barred from filing claims.  After probate, family members can receive property certain that they have free and clear title, and that nobody from the deceased’s past can try to lay claim to the property.

Benefits of Small Estate Affidavit

As mentioned above, some states allow small estates to be closed out without any court supervision.  In Illinois, estates worth under $100,000, and not containing any realestate can be settled with a small estate affidavit.
The benefits of a small estate affidavit are obvious.  In Illinois, the process is simple:  First, if there is a will, it must be filed with the Circuit Clerk for the county of the deceased’s residence.  After that, one must simply attach a certified copy of the death certificate and a certified copy of the will (if any) to a small estate affidavit, and sign it in the presence of a notary public.  Once those steps are accomplished, the affidavit becomes valid. 
The affidavit can be presented to banks, brokerages, creditors, etc.  Under Illinois law, these entities must respect the power of the holder of the affidavit to act to close out the estate.  The affidavit can be used to draw out funds, close accounts, pay off debts, and pay out remaining funds to heirs or legatees (people named in a will).
If the estate is insolvent (there are not enough funds in the estate to pay off all creditors), Illinois law prioritizes the levels of creditors into seven classes, and (as of 1 January 2015) allows the holder of the affidavit to pay off the claims from the highest priority to the lowest priority where there are still funds remaining to pay off claims.  If the estate is solvent (there are enough funds to pay off all creditors), the holder of the affidavit pays out any remainder to the appropriate heirs or legatees.
Once the holder of a small estate affidavit has completed his or her job (which could be just a few weeks), there is no need to report back to a court.  The family just moves on.  Sounds great, right?

Drawbacks

Traditional probate can certainly be slow and painful, and a small estate affidavit seems like a good bypass.  But remember also that probate has benefits.  Most importantly, creditors get one shot to file their claims.  They either do so, or forever hold their peace. 
The small estate affidavit law does not offer similar protection against creditors.  Imagine if your father died with $10,000 in cash and a mountain of debt, and you transferred all his assets to yourself using a small estate affidavit, without ever notifying creditors.  For obvious reasons, the state would not offer you the same protection as if you had gone through probate and provided fair notice to creditors to file their claims.  In this situation, your father’s creditors would likely come after you for your father’s debts.  Not only would they have the right to do so, in Illinois, they could be entitled to recover their attorney fees from you!  This law gives you an incentive to be sure you find all unknown creditors when using a small estate affidavit. 

By using a small estate affidavit, you trade away the protection from liability to creditors that you would ordinarily receive in probate, in exchange for the convenience of settling the case more quickly.  It may be appropriate for relatively simple, clearly solvent estates, with no family disputes.  However, consider traditional probate if there are likely to be unknown creditors, family disputes, or any other complications.
Published by Ian Holzhauer, Esq. of Nagle Obarski PC in Naperville, IL.  
Note:  The information above is not legal advice and is not the basis of an attorney-client relationship.  If you need assistance, you can hire an attorney to assist you with your individual legal needs. 
January 17

International Estate Plans

Having an office in Naperville, IL, I frequently see clients with global ties.  With our proximity to O’Hare International Airport, our community is home to many multinational technology, finance, consulting, and other companies.  Frequently, skilled employees of these businesses have family ties overseas, or have worked for their companies in other countries.

Below, I will discuss a hypothetical family of four that emigrated from the United Kingdom to work at an engineering firm in Naperville.  Families like this, which are increasingly common in today’s world, require careful estate planning services, often from an international team of experts.

Our Hypothetical Family


Imagine our hypothetical family owns a half-million pound house in London, a half-million pound UK bank account, a half-million dollar house in Naperville, and a half-million dollars worth of stocks in US brokerage accounts.  The family has lived in the US for two years.  All family members are dual UK-US citizens.  Every summer the family goes back to London for a month for the children to visit their grandparents, but spends the rest of the year in Naperville.  The family may one day return to the UK or live in a third country, depending on where the company sends them next.

The Local Component

Because the family is living in Illinois, it is extremely important that the parents work with an estate planning attorney licensed to practice law in Illinois.  If either or both parents became disabled or die, Illinois powers of attorney (in the event of disability) or well-drafted trusts (in the event of disability or death) would help ensure the family is properly cared for.   Many families with this level of assets also plan ahead to avoid the difficulties of probate, typically through the use of a living trust.  Perhaps most importantly, the family should name guardians for their children in the event of their deaths, as an Illinois judge would ultimately decide who should serve as guardians.  Without instructions from parents, a judge may pick someone the parents would not have chosen.
So far, the family’s discussion with an Illinois attorney is similar to the discussion any typical Illinois family might have with their attorney.  However, the family’s ties to the UK add a layer of complexity.

UK Estate Plans

Only a lawyer licensed to practice law in the UK is qualified to give advice about an estate plan in that country.  The ideal time for a family to create an estate plan for its overseas property is at the same time as when dealing with US property.
If the US and UK lawyer are working on their respective pieces of the estate plan at the same time, the family would be wise to ask the two lawyers to coordinate.  Some potential reasons:
Probate is aggravating, expensive, and time consuming enough in one country.  It would be unfortunate if the family ultimately had to go through the process in two countries, due to a lack of planning.  A conservative estimate would be $6,000 in legal fees per probate estate, per country.  Therefore, dual nation, dual parent probate could result in $24,000 in legal fees.
-Inheritance tax laws vary greatly from country to country.  While the hypothetical family above does not come close to the threshold of having to worry about federal inheritance tax in the US ($5.43 million per individual; $10.86 million per couple),  its UK assets exceed the inheritance tax threshold in the UK (£650K per couple).  This means they could be facing a 40% tax bill on some of their UK property at death.  Depending on the advice of the UK attorney (in coordination with the Illinois attorney), it may be wise to shift some assets to the US to avoid taxation.
-Local counsel in the UK can properly advise on the formalities of UK will execution.  While the US and the UK are both signatories to the Washington Convention, meaning they agree in principal to respect a will that meets the standards of an “international will,” only UK counsel can advise on the practical realities of probating a UK estate.  Note also that due to the federal nature of the United States, it is up to individual states to adopt (or not) the Washington Convention.  In short, it is a complicated area.  Additionally, only UK counsel would be qualified to advise on probate avoidance mechanisms, like UK trusts.
-If the family has overseas relatives, there is a chance it will inherit further overseas property after drafting its estate plan.  This could exacerbate foreign estate tax and probate problems.  Planning ahead with UK counsel would be wise.

EXECUTORSHIP/TRUSTEESHIP

The successor trustee of a living trust ensures that its terms are carried out after the death or disability of the settlor (the person who created the trust).  Typically this means distributing funds, maintaining accounts, ensuring children are financially cared for, etc.  Similarly, the executor of a will closes out the estate in probate, if probate is necessary.
In Illinois, an executor may be anyone who  “has attained the age of 18 years, is a resident of the United States, is not of unsound mind, is not an adjudged disabled person as defined in this Act and has not been convicted of a felony, is qualified to act” in this position.  See 755 ILCS 5/9-1.  So for the family in question, it is important the executor appointed in any will be a US resident, not a relative in the UK.
For different reasons, all successor trustees of a living trust should ideally be US residents.  Under IRS regulations, allowing a non-US resident to serve as trustee will cause the trust to be classified as a “foreign trust” and incur much more burdensome tax reporting obligations. 

INTERNATIONAL GUARDIANSHIP/ADOPTION

Ideally, the family would name US resident family or friends to serve as guardians of their children in the event of the parents’ death.   755 ILCS 5/11-3 specifically requires that any court-appointed guardian of a child be a US resident.
For a family with a very close relationship to overseas relatives (like our hypothetical family), this could create issues.  Our hypothetical family may have no blood relatives or even close friends in the US, and the children may even have been raised for some time by their grandparents in Great Britain.  Many reasonable people would believe it to be in the best interests of such children to be raised by their relatives, as opposed to non-relatives in Illinois or even in the foster care system.
The US Supreme Court has even declared that parents have a “constitutional, fundamental right to the care, custody, and control of their child.”  Potentially, a situation like the hypothetical one above could create a conflict between the parents’ constitutional right to select guardians, and the Illinois law which forbids them from selecting the UK grandparents.  There could be much debate about what is in the best interests of the child, which is what courts ultimately strive to achieve.
While there is no easy answer to this situation, a few possibilities exist:  If the parents are adamant about naming UK proposed guardians, they should at least name temporary short-term guardians in the US to watch after the children while the longer-term guardianship question is sorted out.  The parents should also clearly state their intentions about who they want raising their children, and where, in their wills (possibly in both countries).  Maintaining dual citizenship for the children may be wise.

Ultimately, it may require the UK family going to a court in the UK to adopt the children or get some form of guardianship, and then trying to get the children travel clearance to the UK through diplomatic channels.  If this type of international adoption/guardianship process is followed, an Illinois judge might be persuaded to release the child from Illinois and allow the international adoption/guardianship to go through.  However, there is no guarantee this process will work, so it would be wise for the family to name local guardians to serve in the event that their preferred guardians cannot take custody of the children.  If any reader has experience with this situation, feel free to send me a message and I’m happy to share with the community.


Published by Ian Holzhauer, Esq. of Nagle Obarski PC in Naperville, IL.   
Note:  The information above is not legal advice and is not the basis of an attorney-client relationship.  If you need assistance, you can hire an attorney to assist you with your individual legal needs. 
January 3

Some Hospitals use Dying Patients for Publicity; how to Protect Yourself

Image Courtesy of Jeffrey M. Vinocur

Today’s New York Times features a troubling story about a hospital that allowed reality TV camera crews to film Mr. Mark Chanko, a trauma patient’s dying moments after he was rushed to the hospital after being struck by a truck.  The hospital acted without Mr. Chanko’s consent, and never notified his family that Mr. Chanko’s death was filmed, or might be broadcast on television.  One night, completely unexpectedly, his wife, Mrs. Anita Chanko, was distressed to hear her deceased husband’s anguished voice crying out in his final moments, on an ABC reality show.  The couple’s daughter, Pamela, who also saw the show, suffered emotional distress after witnessing the graphic details of her father’s gruesome death.

The hospital’s prior vice president of public affairs once said of the show, “You can’t buy this kind of publicity, an eight-part series on a major broadcast network.”  In this blog post, I will discuss legal steps you can take to protect your rights, and to avoid your family’s anguish being used for publicity.

The Chanko family sued the hospital and ABC, but has faced an uphill battle in court.  Recently, the family’s case was thrown out at the appellate level.  A key defense for the hospital has been that the patient was not identifiable to the public because his face was blurred out, and that in any event, his privacy rights were extinguished upon his death.  Further, the defendants are asserting that the First Amendment protects their free expression of the patient’s dying images.  

Carrying the hospital’s legal defense to its logical conclusion, you could be filmed without your consent while undergoing intensive care, for no medically justifiable reason other than building publicity for the hospital.  Scarily, hospitals are claiming you have no right to keep those images private after your death, and the trend toward publicizing these graphic cases is growing.
To fight back against the argument that a hospital can publish images of you without your knowledge or consent, consider addressing the issue in your living will and durable power of attorney for healthcare.  Specifically demand that your hospital not use your images in any type of public release after your death, even if your face is blurred or other steps are taken to mask your identity.  The hospital’s legal argument to publicize would probably be more difficult if it overrode a patient’s express desires not to be filmed, especially since it has no legitimate medical reason to do so in the first place.
Interestingly, the New York Times article describes the legal difficulties of families arguing privacy rights in court, but does not describe any argument about property rights.  Consider adding a line to your healthcare directives stating that you and your heirs do not release ownership of the property rights to any image taken of you at the hospital. By expressly telling the hospital that you are claiming ownership of your own image, they may be on notice that any use of your image would be infringing on your family’s intellectual property rights after your death.  While it is an unusual argument, note that privacy rights might extinguish at death, but it is well established that property rights do not.  That gives your family a much better chance of getting its case before a jury if a hospital goes against your wishes and broadcasts your death on TV.

It is unfortunate that in of all places, we have to worry about trusting the confidentiality of our most private moments in a hospital.  However, an estate planning attorney can help you clarify in your medical directives that you don’t want to be used for hospital publicity.  If nothing else, planning ahead will give your family’s argument some teeth in court if your images are exploited after your death.
Published by Ian Holzhauer, Esq. of Nagle Obarski PC in Naperville, IL.  
Note:  The information above is not legal advice and is not the basis of an attorney-client relationship.  If you need assistance, you can hire an attorney to assist you with your individual legal needs.