ISBA-proposed changes would make the small-estate affidavit a more effective and easier-to-use probate avoidance device, a key proponent says.

A revamped proposal to modify the requirements for small-estate affidavits has been submitted to the Illinois General Assembly, and lawyers who helped draft the legislation are optimistic that this time they got it right.

"It seems that in practically every legislative session a bill is introduced to change the small-estate affidavit," said Dixon-based estate-planning attorney Gary R. Gehlbach. "In my opinion, those changes would have made it more difficult to use the affidavits…[because] the more detailed the law becomes, the more difficult it is to use the affidavit as a practical matter for avoiding the probate process."

Gehlbach, who is a partner with Ehrmann, Gehlbach, Badger, Lee & Considine LLC, was an active participant in the drafting of this year's proposed legislation. He said he has spoken with numerous lawyers about the proposals, both as a member of the ISBA Legislation Committee and as just another interested lawyer who would like to see improvements to what he believes is a valuable tool for allowing small estates to avoid the time and expense of probate proceedings.

"When House Bills 25 and 162 were first introduced, we took a look at those proposed changes and everyone who commented from the organized bar was in opposition," Gehlbach said. "In our Legislative Committee meeting last fall, there was unanimous agreement to oppose the bills…so amendments could be made in order to make it more user-friendly in addition to protecting consumers."

Gehlbach and others reached out to as many interested lawyers as they could find, including banking lawyers, estate-planners and even probate judges, to retune the bills into more workable legislation.

"What we're proposing is imminently more workable for banks and other lenders…and it's not too cumbersome to be used by small estates in lieu of probate," he said.

Addressing surviving spouses, creditors

Gehlbach said a small-estate affidavit is "a creature of statute" that allows executors of estates valued at $100,000 or less to provide certain information in a sworn statement to the banks holding the estate's property and assets.

"If the estate qualifies, by presenting the bank with a small-estate affidavit, the bank would turn over the money in accordance with the affidavit, without the need to go through probate," he said.

The proposed legislation would modify and add to the mandatory elements that must be included in the affidavits. Such elements include that the affidavit must state whether expenses such as burial and funeral costs, medical bills, credit card bills, and real estate taxes have or have not been paid.

If there is a surviving spouse but he or she is not the affiant, then the affidavit must state the reason that someone other than the surviving spouse has prepared and signed the document, the proposal says. Such an affidavit must also include a notarized statement, signed by the surviving spouse and two witnesses unrelated to the affiant, indicating that the spouse has declined to be the affiant.

The proposal also provides that the affidavit set forth a list of all known creditors to whom payments from the estate must be made prior to any distributions of assets to the heirs of the estate.

"This makes clear [to the affiant] there is a hierarchy of creditors who must receive payment prior to any distributions to the heirs," Gehlbach said. These requirements should make it easier for small estates to utilize this valuable tool, as well as making it easier for banks and other lending institutions to comply.

Keeping the $100,000 threshold

Gehlbach said these changes come as a bit of a compromise involving the threshold for what qualifies as a "small estate." There was discussion among the many attorneys who commented on the draft bills about whether the threshold is too high.

"We discussed whether the $100,000 mark is too high, but it's been ingrained in our practice for about six years now - prior to that it was $50,000," Gehlbach said. "Rather than reducing the amount, we decided to make the statutory form of affidavit better reflect the responsibilities of the person signing the affidavit than the current form."

Gehlbach said that but for one last comment worthy of further consideration in the March committee meeting, the bill is finally ready for action in the Illinois House.

"One comment was that if the person tendering the small-estate affidavit does not follow the law, perhaps by not paying creditors before making distributions, that person should be responsible for any legal fees or damages the creditors would incur, and I think that's a good suggested change," Gehlbach said.

"I think there's support for the changes now with the organized bar," he added. "Everyone who has commented now has expressed approval - but whether the legislators will acquiesce remains to be seen."