My sister recently passed away without a will & owns a townhome outright. She left life insurance for her child in his name as the beneficiary (5 years old). She has credit card bills, as well as medical and school bills/loans. Her total estate fits within the small estate statue because her townhouse is worth about $40,000. Outside of her paid off home she only had a few thousand dollars in her 401K and bank account. What steps should we take in moving forward with her estate (whether small estate or probate/whatever option else there is), and which can give us the best path in regards to dealing with creditors as our goal is to salvage as much as we can for her 5 year old son. Thank you.
Small Estate Affidavits are used in Arizona to transfer assets from a deceased person to the heirs when the total value of the assets is below the minimum value requiring a traditional probate.
Under Arizona law, the general rule is that if a deceased person owned more than $75,000 of equity in real estate, or more than $50,000 of personal property (including physical possessions and money), then a traditional probate is required to transfer the assets to the heirs. A Small Estate Affidavit may only be used when a traditional probate is not required.
If the entire value of the deceased person’s equity interest in real estate is worth less than $75,000, then each property otherwise subject to traditional probate may be transferred using an Affidavit of Succession to Real Property.
When determining the value of real estate for this purpose, the amount of equity interest is calculated by using the current year’s assessed value for property tax purposes less any outstanding debt. This amount is usually, but not always, substantially lower than the property’s fair market value. For example, the fair market value may be $250,000, but the assessed value for property tax purposes only $195,000.
Filing the affidavit is a three step process. First, the affidavit is filed in the probate court in the county where the property is located, along with a certified copy of the death certificate, and the original will if there is one. Second, after the court returns a certified copy, the affidavit and a certified copy of the death certificate are published in a newspaper of general circulation in the same county. Third, the as-filed affidavit is recorded in the county where the property is located. The recording officially transfers the property to the person or persons identified in the affidavit.
The typical mortgage document will state any transfer of the property will trigger a due-on-sale clause. Thus, the beneficiary of property subject to a mortgage should contact the lender before making a transfer using the Affidavit of Succession to Real Property. The mortgage lender does not have to agree to use of the affidavit procedure. It may prefer a traditional probate action in order to refinance the mortgage.
The main drawback of using an Affidavit of Succession to Real Property is the person using the affidavit must wait six months after the owner’s death before filing it. Often the better approach – although more expensive – is to petition for informal probate anyway because it can be opened (and closed) before the six month waiting period would have ended. Using an informal probate will permit a faster closing than using the Small Estate Affidavit.
When filing the affidavit, the signer must also verify that no estate taxes are due and that funeral expenses, expenses of last illness, and all unsecured debts of the owner have been paid. In some cases – where the home is basically the only substantial asset – this last item may prohibit the use of the Small Estate Affidavit because sale proceeds are needed to pay these expenses first.
The counterpart to the Affidavit for Succession to Real Property is the Affidavit for Collection of Personal Property. It is a highly useful tool for closing out small accounts and transferring car titles without much hassle; provided the total value of personal property subject to probate is less than $50,000. Most financial institutions and the DMV will be eager to accept it.
Unlike the six month waiting period applicable to the Affidavit for Succession to Real Property, the waiting period to use the Affidavit for Collection of Personal Property is only 30 days after date of death.
Attorney Johnson has given one of her patented comprehensive answers. The only thing that I would add is that there may be some exemptions and allowances under Arizona law that would shelter some or all of the assets for the minor child. You are likely going to need to set up a conservatorship estate for him, anyway, unless you can get the insurance company to hold and invest the funds for him, until he reaches the age of majority.
Because there are a lot of facts unstated in your summary and because of the potential for a dramatic change in result, you really need to meet with a probate attorney who can help you sort out these issues and determine how best for you to proceed.
Best of luck to you and your entire family as you address this issues and deal with this horrible loss!
James Frederick
