Articles of Interest

Buying A Home

This article outlines some key issues you need to consider when you purchase a residence without the assistance of a realtor as well as those situations where the seller is trying to sell a residence in a “for sale by owner” situation sometimes called a FSBO. This article is not intended to provide legal or other professional advice but is intended to familiarize you with some of the issues and terminology you may face when you purchase and/or sell a residence.

OFFER AND ACCEPTANCE OR REAL ESTATE SALES CONTRACT

Under Iowa law, a contract for the sale of real estate is only binding if it is in writing signed by the parties. Since the sale of real estate often involves substantial sums of money and the legal issues can be complex, a buyer should consider retaining an attorney to review the real estate sales contract before it is signed by the buyer. A real estate sales contract needs to address price, payment terms, determination of and the manner of transfer of title, a description of the real estate and any fixtures or personal property included in the sale, the possession date and the closing date (which normally coincide), proration of property taxes and other matters.

Normally, an offer and earnest money are submitted by the buyer, and the seller will accept, counteroffer or ignore the offer. The amount of earnest money varies for each transaction. Earnest money should be held in the seller’s attorney’s trust account or the real estate broker’s trust account until closing.

DISCLOSURE REQUIREMENTS

Residential Property Seller Disclosure Statement.  The Residential Property Seller Disclosure Statement form is required under Iowa law to be given to a buyer no later than the time the buyer tenders an offer to purchase a house. It should be completed by the seller to the best of the seller’s knowledge. Both buyer and seller should sign two copies of the form and each should retain a signed copy.

EPA Lead Paint Disclosures. With respect to the sale or lease of homes built before 1978, Federal Law requires that the EPA Lead Hazard Disclosure Statement be completed by the seller and signed by the buyer. In conjunction with providing the buyer with the Disclosure Statement, the seller should also provide the buyer with the EPA Lead Hazard Booklet.

CLOSING PROCESS

Abstract Continuation. Once an offer to purchase is accepted, the seller will need to locate the abstract of title for the real estate and get it updated and continued by an abstract company. The abstract lists all of the documents (e.g., deeds, mortgages etc.) that are part of the public record at the county recorder’s office, the courts and other governmental offices that affect title to the property. The continuation of the abstract by an abstract company can take several weeks. Abstract continuations to show marketable title in the seller are usually done at the seller’s expense. In order to keep track of the abstract (they are expensive to replace), please be sure to get a receipt for the abstract whenever you deliver possession of it to anyone. Certain matters can affect ownership and enjoyment of a residence which are not a matter of public record and which will not be shown in the abstract, such as rights or claims of parties in possession; the possibility of mechanic’s liens or special assessments for recent improvements not appearing of record; to any state of facts which an accurate survey might reveal and any state of facts which might be revealed by a physical inspection or soil test of the property (e.g. nuisances, easements, diseased trees, location of driveways, encroachment of fences, buildings or other structures from adjacent parcels of real estate, and the availability of reasonable and convenient access to the property from an existing public right of way). Many of these matters can become apparent upon inspection or investigation of the residence. Title opinions are usually expressly made subject to such matters.

Buyers should investigate whether any solid wastes, hazardous substances, pollutants, above or below ground storage tanks, drainage wells, water wells, landfill sites or other environmentally regulated conditions exist on the property. Such conditions are not ordinarily shown in the abstract. However, such conditions may result in injunctions, fines, required cleanup or other remedial actions under federal, state or local laws. These laws may impose liens against the property and personal liability against the owner even though the owner did nothing to create the condition and acquired the property without knowing about it.

Title Opinion. Once the abstract is continued, it should be delivered to the buyer’s attorney for a title opinion. In many cases, if the buyer is obtaining financing, the buyer’s lender will engage an attorney to examine the abstract and render the title opinion. Many buyers rely on the lender’s attorney’s title opinion and do not retain an independent attorney to examine the abstract. In these situations, please be cautious that the lender’s attorney is most likely only responsible to the lender and not the buyer. Therefore, if the lender’s attorney missed a title defect, the buyer may not have any recourse against the lender’s attorney. One possible solution to this problem is to request that the lender allow the buyer to choose an attorney to examine the abstract for both buyer and the lender. The title opinion for the buyer should be at the buyer’s expense. The title opinion will indicate, based on the abstract, whether the seller has marketable title to the property. Sometimes, the attorney examining the abstract will note objections in the opinion that raise questions about the seller’s title. Most notably would be mortgages, outstanding property taxes and the like. Some objections can be readily cured before closing, but sometimes there can be serious objections that cannot be readily cured.

Title Guaranty.  As a purchaser of real estate, you should consider whether to purchase the protection afforded by an Owner’s Title Guaranty Certificate and the optional endorsements to such Certificates. These Certificates are issued by the Title Guaranty Division of the Iowa Finance Authority and may be purchased through a participating attorney. A Title Guaranty Certificate provides certain protection to a buyer that exceeds the protection available through a title opinion, such as matters which cannot be abstracted or investigated because it is impossible or infeasible to do so, including survey errors, forged or altered documents affecting title, and the legal competency or authority of each person executing any instrument affecting the real estate.

Transfer Documents.  The seller is normally responsible for preparing the necessary transfer documents, which would include a Deed, a Ground Water Hazard Statement (GWHS), a Declaration of Value (DOV) and the Closing Statement. The deed conveys the property to the buyer. Normally a buyer will require a warranty deed in which the seller warrants title. A warranty deed warrants title against defects even if they were prior to when the seller purchased the property. Other types of deeds include:

• A special warranty deed, which only warrants title against defects that arose while the property was owned by the seller.
• A court officer’s deed, which may require court approval and is typically given by an Executor or Administrator of an estate or a Conservator.
• A quit claim deed, which provides no warranties of any kind.

 

A buyer should consult with his/her attorney regarding the type of deed appropriate for the transaction. The GWHS indicates whether there are any hazardous wastes, solid waste disposal sites, underground storage tanks, abandoned wells or private burial sites on the property. The DOV reports the purchase price paid by the buyers. On the DOV, any portion of the purchase price for personal property should be separately noted. The GWHS and DOV must accompany the deed when the deed is recorded by the buyer.

In order to prepare the deed, GWHS and DOV, the seller’s attorney will need to have a copy of the title opinion, the names of the buyers, the social security numbers for both the seller and buyer, and if there is more than one buyer, whether the buyers want to hold the property in joint tenancy with full rights of survivorship or as tenants in common.

Closing Statement.  If the Buyer is obtaining financing, normally the lender will prepare a closing statement reflecting the purchase price, applicable credits (like accrued taxes, transfer taxes, earnest money, etc.), and the amounts due seller at closing. Remember, the property taxes paid in September and March each year are actually for the prior fiscal year ending June 30 and, therefore, property taxes are always one year behind. Accrued and prorated property taxes are normally taken as a credit by the buyer against the purchase price.

Under Iowa law, the seller is also assessed real estate transfer taxes when the deed is recorded. The real estate transfer taxes are basically $0.80 per $500 ($1.60 per $1,000) of the purchase price (after the first $500). The transfer taxes are normally taken as a credit by the buyer on the closing statement. The buyer then pays the transfer taxes when the deed is recorded. The deed is usually recorded at buyer’s cost.

Post Closing. After closing, the buyer or the buyer’s lender will want to record the deed, DOV and GWHS. The abstract should be kept by the buyer or their lender.

Real Estate Professionals.  You can also purchase and/or sell a residence by using a real estate licensee (e.g., salesperson or broker). If real estate licensees are involved, a sales commission is usually paid by the seller. There are some real estate documents that cannot be prepared by real estate licensees, such as deeds, installment contracts, etc. These documents should be prepared by an attorney. Your lender, real estate licensee, and attorney will all play different roles to assist you in the purchase and/or sale of your residence. You should make use of each of their skills and training and carefully consider their advice.

By no means does this article cover everything you need to know concerning purchasing and/or selling a residence, and every transaction is different. Rather, this article provides you a simple overview of the process.

Adapted from the Iowa State Bar Association – consumer pamphlet series, with permission from the Iowa State Bar Association.

Starting A Business

Are you considering starting a new business or adopting a new business form for an existing business? If so, once you have decided on a budget for start-up expenses, you should work closely with professionals including your lawyer, accountant, and banker to assure you make the best decisions for your particular situation. This article is not intended to provide legal or other professional advice, but is instead intended to familiarize you with some of the issues and terminology you will face in your decision-making process.

Preliminary Considerations

Liability. There are a number of different forms of business as described later in this article. One of the reasons for the differing forms of business is the desire of businesspersons to limit their liability to the money and resources they have invested in the company. You will need to decide whether you desire to shield your personal assets from possible business expenses.

Tax. Another reason for the varying forms of business are the tax implications. Some entities allow for a pass-through of business expenses to be offset against an individual’s income. Others provide for entirely separate tax treatment under certain circumstances. You should consult a tax attorney or accountant regarding the best treatment for your particular circumstances.

Ability to Raise Capital. A lender may prefer one form of business to another due to risk to the lender. It is possible you could incorporate with the intention of shielding personal assets only to discover that the lender requires a personal guarantee on your operating loan.

Ease in Operating Business. Some business forms are more complex than others and require steps not required for other forms. You should consider the amount of future professional expenses likely to be incurred and periodic necessary formalities in deciding on the appropriate business form.

Control. In what way, if any, will other persons or entities desire to retain an amount of control in the business.

BUSINESS NAME

You should give careful consideration to the business name under which you operate. It would be best if you used a business name which is not the same or too similar to the business name of any other entity operating in your market. Expenses can unnecessarily result from confusion in the marketplace or infringement on another party’s rights. Ways to research your business name include using an internet search engine, reviewing phone books and listings, checking the Iowa Secretary of State website at

http://sos.iowa.gov/search/business/search.aspx

or searching the federal trademark office listings at

www.uspto.gov/main/trademarks.htm

In some circumstances, filings are necessary in relation to use of business names. Check with a qualified professional for assistance.

 

 

FORMS OF BUSINESS

Sole Proprietorship. This form is the simplest and most common by sheer number of operating businesses. To create a sole proprietorship, an individual need merely begin to do business. However, it may be necessary for the individual to have a business license, a sales tax permit, or to register the business name. Again, check with a qualified professional.

Advantages of this form include that the owner has a high degree of control, operation is easier than some other forms of business, certain employment taxes may be avoided, the business may not be subject to certain federal regulations, and assets can be shifted in and out of the business easier than under other forms of business. Disadvantages include that the owner’s individual assets are not shielded from creditors of the business and the owner’s income may not be tax deductible since the owner is not considered an employee. Other concerns with a sole proprietorship include that the business will have a limited life since it will probably cease upon the death of the sole proprietor.

Partnership. If an individual seeks to go into business with another person, they may desire to form a partnership. A partnership can be created formally, i.e., with a written agreement, or informally, but a written agreement setting forth at least the primary terms of the relationship is always a good idea and may help avoid the costs of litigation later. You will need to properly register the business name. Consult a qualified professional for assistance.

With a partnership, the business becomes a separate entity from the two or more individual partners. However, general partners will be liable for company debts without limitation to their investment in the company. A general partner is a person who has authority to operate and manage the business. One way a person who desires to invest in a partnership can potentially limit his or her liability is to invest as a limited partner. Generally, a limited partner is merely an investor and cannot take part in the management of the business so as to preserve the partner’s liability limitation up to the person’s investment in the company. Creating a limited partnership requires a written partnership agreement and a filing with the Secretary of State. Again, consult with a qualified professional to ensure completion of the necessary steps.

Another way a partnership may be able to protect against some liability is to become designated as a limited liability partnership. Generally, partners in a limited liability partnership are not liable for the negligence of their partners, but remain responsible for their own acts. Consult a qualified professional for assistance in creating such an entity.

Partnerships have very specific rules about dissolution and generally have a limited life since the partnership will dissolve if a general partner is expelled, dies, goes bankrupt, or withdraws. Partnerships obtain a tax identification number separate from the partners’ social security numbers and file an “information” tax return. However, income to partners will be taxed at the individual partners’ tax rates.

“C” Corporation. The “ordinary” corporation is referred to as a “C” corporation. A primary advantage of incorporation is that owners in the company, i.e., stockholders, are only liable for corporate debts and obligations to the extent of their investments in the company. Other advantages include continuity of life of the business, centralized management in a board of directors, and ownership may be freely transferable unless restricted by the corporate documents. Although a corporation features limited liability to owners, this feature can be lost or ignored by a court if “corporate formalities” are not followed, so that oversight by a qualified professional is important. This may be considered a disadvantage of incorporation versus other forms of business since incorporation requires greater upkeep and maintenance activities.

The corporation is taxed as an entity separate from its owners. This can be a disadvantage since some income from the corporation passing in the form of dividends to shareholders will be subject to double taxation: once at the corporate level, and a second time at the shareholder’s individual rate.

“S” Corporation. This form of business takes its name from a provision in the federal tax code called “subchapter S.” An S corporation is essentially a C corporation which has met certain specific requirements and is therefore entitled to the liability limitations of a C corporation, but is taxed like a partnership. In other words, individual owners may be better able to pass through losses incurred early in the business’s existence for their own advantage unlike in a C corporation scenario. An S corporation requires an additional filing with the Internal Revenue Service within a specified time period and has limitations to which C corporations are not subject including that an S corporation may not have more than 100 shareholders, may not have a corporate shareholder, and can only have one class of stock. The primary disadvantage of an S corporation is that it has a higher cost of maintenance than other business form

Limited Liability Company. This is the newest of the major forms of business organization. A limited liability company generally is a simpler form of business than a corporation but it retains the limitation of liability of a corporation, while having the option of being taxed like a partnership. Again, such a form may be desirable to pass through business losses to individual owners. Organization and maintenance of an “LLC” is now much simpler than it used to be from a tax standpoint since it is now merely a matter of “election” to be treated as an LLC whereas in prior years tax regulations required the maintenance of certain attributes. Formation of an LLC mirrors that of a corporation with some differences including that instead of “directors,” there are “managers,” and instead of “stockholders,” there are “members.” A potential disadvantage of this form in practice exists if a single person intends to add a partner at a later time, since changing the tax treatment of the entity may constitute a disagreeable taxable event. Again, a qualified professional should be consulted throughout the process to ensure the best form of business is chosen and maintained for your particular situation.

Other Considerations.Regardless of the particular form of business you choose, there are a number of other key considerations. Even if your business form features limited liability for company indebtedness, you should review all possible exposure to yourself and your company and make sure that insurance of the appropriate type and amount is obtained. Insurance you should consider includes but is not limited to liability, property, casualty, automobile, key person, business interruption, director and officer, and workers’ compensation insurance (the latter being required by law). In addition, in the event two or more people own the business, regardless of the business form, you should give careful consideration to creation of a “buy-sell” agreement which provides methodologies for transfers of ownership in the event of such matters as death or withdrawal of a party.

CONTACT INFORMATION

Following are a few useful contacts which you may find helpful in answering questions about your business organization.

Iowa Secretary of State
Statehouse
Des Moines, IA 50319
(515) 281-5204
sos@sos.state.ia.us
http://www.sos.state.ia.us/

IRS Taxpayer Assistance Center 210 Walnut St.
Des Moines, IA 50309
(515) 284-4240
www.irs.ustreas.gov/businesses/index.html
www.irs.ustreas.gov/formspubs/index.html

Taxpayer Services
Iowa Department of Revenue and Finance
P.O. Box 10457
Des Moines, IA 50306-0457
(515) 281-3114
800-367-3388
www.state.ia.us/tax/business/business.html

Adapted from the Iowa State Bar Association – consumer pamphlet series, with permission from the Iowa State Bar Association.

A living trust, also known as a revocable trust, revocable living trust, or inter vivos trust, is an alternative way to own property during your life and transfer property at your death. Living trusts have been prepared by lawyers for clients for many years. You can create a living trust during your lifetime by signing a legal document that directs how property transferred to the trust will be managed, when and to whom the income from the trust property will be paid, and to whom, when and how the trust property will be distributed when you die. A person setting up the trust is called either a settlor, grantor, or trustor of the trust, while the person to whom you transfer your property is called the trustee. The persons who will receive the income during your lifetime or who will receive the trust property after your death, are called the beneficiaries. You may be the settlor, a trustee, and a beneficiary, all at the same time. The property in the trust is called the trust principal, corpus, or res.

Do I need a living trust?
You may decide you need a living trust, but first you should review your own situation with your lawyer to decide whether or not a trust is correct for you. It could be that a will, some other type of trust, or other arrangements would better fit your situation. Such a determination is dependent on your situation and personal feelings upon getting proper legal advice.

Whom should I name as trustee?
You may be the only trustee or you may be a co-trustee. You may name another individual(s), or a certain financial institution, as your trustee. You should also provide for a successor trustee to act in the future in the event of your disability or after your death. Anyone you select as a co-trustee or successor trustee should be capable and trustworthy. Family members may or may not be selected by you depending upon your circumstances and their abilities. You should also consider whether a bank can provide services that an individual cannot.

Why is there so much publicity about living trusts?
A proper estate plan utilizing a living trust makes it possible to avoid probate. Probate is the process where upon your death, a will is filed with the court, along with other legal documents, and the estate is administered under court supervision and open to public record. Much of the current interest comes from concern and publicity about the cost and length of time to complete the probate of a will. In Iowa, probate fees and court costs are based upon the size of the estate. A typical probate administration may run anywhere from six months to a year, or even longer in certain cases. The fees for handling a trust are negotiable between the trustee and the attorney. You should consult with your lawyer about the comparative costs of various estate plans.

What are the advantages of a living trust?

• You can have another person or bank which has investment expertise act as a trustee and make investments for you.
• You can avoid the expense and inconvenience of having a conservator manage your property if you become too sick or disabled, but only if all of your property is in the trust.
• After your death, the trustee can distribute the trust assets directly to the beneficiaries without going through the probate process. This is particularly beneficial if you own real estate in more than one state.
• After your death, the costs and expenses for personal representatives, lawyers, court costs and others may be less.
• It is possible that a living trust can be kept more confidential than a will.

 

What are the disadvantages of a living trust?

• You will typically spend more time and money in properly creating and transferring your assets to a living trust than you would to have a will prepared.
• To effectively avoid probate, you must keep track of your assets and keep all of your property in the trust, including property acquired after you create the trust.
• You may experience problems in transferring or selling assets or making purchases with trust checks and encounter banks, transfer agents or others who want to see the trust agreement in order to know that the trustee has certain powers of authority.
• Upon your disability or death, the management of your trust assets will depend upon the honesty and management ability of your successor trustee who may act without court control or involvement.
• You may have to pay trustee’s fees and expenses if you use a third party as trustee, including the costs of filing an annual trust income tax return.

 

Does a living trust save taxes? 
For federal income tax purposes, as long as you act as the trustee or the co-trustee and the trust uses your social security number for its taxpayer identification number, your living trust will be treated no differently than if you had not created the trust. Likewise, you will not save any “death” taxes (state inheritance or federal estate) simply because you have created a living trust. Although, a properly prepared living trust can reduce death taxes; exactly the same savings can also be achieved by a will.

How do I transfer ownership of my property to the trust?
In order to avoid probate, you must transfer the ownership of each and every asset to the trust. To transfer real property, a deed must be signed and recorded; transfer of publicly traded stocks and bonds will likely require the services of a broker; transfer of partnerships and closely held corporations may require the review of the governing instruments to determine whether other partners or stockholders must consent to such transfer; assets without formal legal title such as household contents and farm machinery will require a bill of sale.

What if I do not transfer all of my property to the trust?
Any property which you do not transfer to the trust will be subject to distribution as set out in your will or the Iowa laws providing for distribution of your estate if you do not have a will. If any property is not transferred, then you may be required to have the entire estate handled in the probate process.  You should also have a will to cover any assets that are not transferred to the trust. This is termed a “pour-over will” which transfers any property which you own at the time of your death to your living trust or a will which has other provisions.

Can my successor trustee immediately distribute property from the trust after my death?
Generally, no. Your trustee must first pay your debts and expenses, resolve any trust problems, file tax returns (income, state inheritance tax and federal estate tax) that are due and owing.

Once I set up a trust, can I change my mind?
Yes. While you are alive and competent, you are in complete control of your trust. You may change or terminate the trust at any time provided the trust document specifically gives you that right. Upon your death or becoming mentally incompetent, no further changes are allowed. Certain types of trusts, called irrevocable trusts, are different and are utilized for special purposes and generally do not allow you to make any changes.

Can I use a living trust form or kit that I buy?
You can use a form or kit or even prepare the trust agreement yourself, but your situation may not fit the form, or the form may have been poorly prepared and may lead to adverse tax consequences and conflicts over property distributions. Problems with the forms or kits may not surface until years later, sometimes not until after your death when you cannot change the trust and clear up the problem. Just as you would run the risk of flying in a plane built by someone without the proper training and experience, it can be “dangerous” using a trust form or kit without using a knowledgeable attorney.

WARNING

Certain publicity and persons selling living trust kits have been misleading people into thinking that the property in a living trust is protected from taxes and creditors. This is not true! A living trust will not protect your property from nursing home expenses, hospital bills, or other creditors, nor will the creation of a living trust qualify you for Medicaid.

CONCLUSION

You have taken a lifetime to accumulate your wealth. You should take great care to make certain that your estate plan carries out your wishes without problems. A living trust may or may not be right for you. Competent professional help is essential to make certain that your estate plan meets your specific needs.

Adapted from the Iowa State Bar Association – consumer pamphlet series, with permission from the Iowa State Bar Association.

Nearly everyone should have a will to assure their property is distributed as they wish after they die. A will may also control the way in which heirs receive their bequests to take advantage of substantial tax savings. Proper estate planning may result in a will that can save thousands of dollars in federal estate taxes. Wills should be prepared and reviewed from time to time by an attorney to take into account changes in law as they occur.

What is a will? How is a will different from an estate plan?
A will is a written document that directs the distribution of your property at death, states who will care for and distribute that property, and names someone to care for your minor children. Each state has its own requirements for legal wills. An estate plan is a set of documents that includes your will and any additional documents created to plan for your death or disability. Such documents might include a trust, powers of attorney, a living will, and beneficiary designations on life insurance and retirement accounts.

What happens if I die without a will?
If you die without a valid will, you have no control over the disposition of your probate property. Instead the laws of the State of Iowa make that decision. According to these laws, your property will be distributed to your relatives in a certain manner based upon your relationship (blood or marriage) to those persons.

Who may make a will?
In Iowa, a valid will must comply with these requirements:

• The maker (testator) must be at least 18 years of age.
• The maker must be of “sound mind.”
• The will must be written and must be signed by the maker in the presence of at least two competent witnesses, at least 16 years of age, who also sign the will in the presence of the maker and each other.
• The maker must declare to the witnesses that it is his or her will.

Although not legally required, the will can be self-proved at the time it is made if the maker and the witnesses sign affidavits describing how the will was executed. Then it will not be necessary to find the witnesses and have them testify about the execution of the will when the will needs to be proven.

Although not legally required, the assistance of an attorney is recommended to ensure that the will is valid and your estate will be distributed as you desire.

What is an executor?
The executor is the person you desire to carry out the provisions of your will. You will need to name the executor of your will. It is also a good idea to name an alternate executor as a substitute in case your first choice is unable to serve. If you do not name a person who is willing and able to serve as executor, the court will appoint an executor for you.

How long is a will valid?
A will that meets all of the requirements described earlier is valid until it is changed or revoked by the maker. Changed circumstances (such as marriage, divorce, birth, adoption, death, or changes in tax laws) may require an addition or correction. These changes may be reflected in a document called a codicil. This allows for the changes without redoing your entire will. The codicil must comply with the same requirements as the original will. However, you may need to completely redo the will if the changes are substantial ones. Wills may be changed as often as their makers wish, as long as they are of sound mind.

How can a will be revoked?
A will can be revoked by being canceled or destroyed by the maker or at the maker’s direction, with the intention of revoking it. A will can also be revoked by executing another will. A will that is revoked by cancellation must be witnessed in the same manner as in the making of a new will. The maker cannot revive a will which has been revoked except by re-executing the will or by executing another will or codicil.

What is probate?
Probate is a formal court procedure that occurs after the death of the maker of a will and serves the following purposes:

• It allows the transfer of clear title to real estate you owned at your death which was not held in joint tenancy with someone else who had the right of survivorship.
• It allows your will to be established as your official will in order to dispose of your estate.
• It allows your estate to be distributed to your intended beneficiaries after the payment of all debts and charges against your estate, and cuts off further claims by your creditors against the property distributed.

 

It may be possible to avoid probate; however, whether or not the court system is used, certain documents must be filed and taxes paid to properly finalize the deceased’s affairs. For these reasons, a lawyer should be consulted.

Probate laws are designed to protect the rights of heirs and creditors and to assure the orderly collection, preservation, and transfer of property. If you die with an ownership interest in any property, your estate generally must be probated whether you have a will or not. The court will determine whether your will is valid or determine who is to receive the property if there is no will. Thus, with or without a will you could end up “in court.”

The probate process necessarily involves the payment of certain fees. The value of the estate’s assets will determine the court filing fees. Attorney fees vary depending on the complexity of the estate. Also, fees vary from one attorney to another, depending on experience and other factors. Once an attorney has basic information about the estate, he or she should be able to give you a rough estimate of total fees. Be sure you understand the fee arrangement before retaining the attorney. In addition, the executor or administrator has a right to reimbursement for expenses incurred in managing and settling the estate, and for time spent carrying out those duties. Iowa law provides a maximum which may be charged by an attorney or personal representative for fees in any estate.

Probate can take two years or even longer for a large or contested estate. One reason for this is the time allowed for creditors to file claims against the estate. Additionally, the Iowa Department of Revenue and Finance and the Internal Revenue Service must approve any state and federal estate tax returns which must be filed within nine months after the date of death. The time needed for probate depends on such factors as estate size, type of assets owned, form of ownership, tax issues, complexity of creditors’ claims, marital property issues, and whether a business is involved.

Iowa law requires that an estate be closed within 3 years after the second publication of the notice to creditors, unless a court grants an extension. Even while the estate is still in probate, however, beneficiaries may be able to receive part of their inheritance. Once the creditors’ claim period is past, the personal representative should make sure the estate has enough funds set aside to cover all expenses and taxes. Then out of remaining funds, the personal representative could make a partial distribution to beneficiaries before probate is complete.

Many people take elaborate steps to avoid probate. While it is true that probate may not be necessary if you own no property or if all of your property is held jointly or in trust, probate avoidance may increase expenses and taxes and may not be desirable. The advice of a lawyer can help you decide the best plan for your individual situation.

If your estate does not exceed a certain value (currently $25,000.00) and consists solely of personal property, a probate proceeding may not be required and the estate can be transferred with an affidavit. Creditor claims must still be paid, however.

Does a will create increased estate administration expenses?
No, and it may even save estate administration expense because less court involvement is required (e.g. a will can waive the requirement that a bond be posted, and also provide an executor with a power of sale to avoid the need to obtain certain court approvals). Careful estate planning through a will can save your estate and beneficiaries substantial administration costs and taxes.

What kinds of property are not covered by a will?
Certain assets (non-probate assets) are disposed of outside of a will, including the following:

• Life insurance. Money from your life insurance policy will go to the people you have named as beneficiaries on the policy, no matter whom you have chosen to receive property in your will, unless you designate your estate as the beneficiary, you fail to name a beneficiary, or in certain cases if the person named does not survive you.
• Retirement plans. Money from your retirement plan will go to the people you have named in the plan, with or without a will, unless you fail to name anyone or in certain cases if the person named does not survive you.
• Property owned as joint tenants. You may own real estate, bank accounts, or other property with another person(s) as joint tenants. Your co-owners will inherit your share, no matter whom you have named as heirs in your will.
• Living trusts. Property you have placed in a living trust during your lifetime will go to the trust’s beneficiary, with or without a will.

 

It is advisable to make a will even if your estate consists of the above kinds of property. For example, if you later acquire property or assets that are not of one of these types, your will would cover such assets (e.g. inheritance, lottery winnings). Moreover, the only way to appoint a guardian or conservator for your minor children and their inheritance is through a valid will.

Is a will expensive?
The cost of a will can vary depending on the complexity of the will and the extent of your assets. The expense is normally minimal compared to the benefits you and your beneficiaries receive from having a well-devised estate plan.

Adapted from the Iowa State Bar Association – consumer pamphlet series, with permission from the Iowa State Bar Association.