A new law makes the small-estate affidavit better for rounding up stray assets that didn't make it into probate-avoiding trusts and more palatable to banks and other entities.

Modern estate planning relies heavily on trusts and other non-probate mechanisms to distribute assets after an individual's death. However, sometimes stray assets fail to make it into the corpus of a trust. That can complicate a probate-avoidance approach, because many institutions want letters of office before releasing the assets. Obtaining a letter of office requires probating the estate.

In other cases, surviving family members may need help handling a deceased relative's small estate - so small that the cost of probating a will outweighs the value of the assets. In both situations, the small estate affidavit can be a handy tool for families or executors.

The small estate affidavit is nothing new. However, on January 1, 2015, changes to the affidavit, enacted by Public Act 98-0836, take effect. (LawPulse last covered this issue in April 2013, before the current law was approved. See "Legislature considering modifications to small-estate affidavits," by Adam Lasker.)

According to Dixon-based attorney Gary Gehlbach, the changes make the small estate affidavit substantially different than it was before. These changes were part of a larger effort by the ISBA Legislation Committee, which had initially opposed several bills that proposed unworkable changes to the small estate affidavit. The Committee significantly revised the statute (755 ILCS 5/25-1), primarily by changing the language of the affidavit itself.

Gehlbach, a partner at Ehrmann Gehlbach Badger Lee & Considine, LLC, was one of the members of the ISBA Legislation Committee who helped draft the changes to the small estate affidavit. (He is also secretary of the ISBA Trusts & Estates Section Council.) The changes make the affidavit "substantially different" than its previous version.

The new version includes a section that places the decedent's known, unpaid debts into seven different categories. Class 1 debts cover funeral and burial expenses. Class 2 debts are for the surviving spouse's or children's award from the estate. Class 3 debts are owed to the United States. Class 4 debts cover money owed to the decedent's employees, so long as those debts do not exceed $800. Class 5 debts are for untraceable money or property held by the decedent. Class 6 debts are owed to the state of Illinois, and Class 7 is a catch-all category.

Perfect for assets that fall through the cracks

The affiant who signs the small estate affidavit now bears the responsibility of making sure that each class of debts (if any) are paid from the decedent's estate before any other distributions are made. According to Gehlbach, these new provisions solve the problem of creditors going unpaid.

The new provisions also allow banks and other entities holding a decedent's assets to rely on the affidavit, because the affiant's duty to pay back creditors is backed by an indemnification clause. Individuals who execute a small estate affidavit should be made aware of this obligation, Gehlbach says, because the indemnification clause covers a broad range of people and entities.

The statute also includes a separate provision that releases any person or entity who relies on a small estate affidavit from liability related to disbursing assets to the person presenting the affidavit. See 755 ILCS 5/25-1(d). In addition, the statute codifies the affiant's duty to pay any indemnification obligations. See 755 ILCS 5/25-1(e). Gehlbach also notes that Pub. Act 98-0836 incorporates the small estate affidavit into the Safe Deposit Box Opening Act, which allows an affiant to present the affidavit to the lessor of a safe deposit box and then gain access to the box and its contents.

Gehlbach believes the amendments enacted in Pub. Act 98-0836 make the small estate affidavit more useful. In the past, some banks were unwilling to rely on the small estate affidavit and would not release funds that had not gone through probate.

The small estate affidavit "is the perfect way to administer assets that fall through the cracks," says Gehlbach. He notes that because it can be too expensive to probate small estates, some assets would end up unclaimed by a decedent's survivors. As long as the combined assets do not exceed $100,000, the small estate affidavit is the most effective way to handle them, he says.

As a note for practitioners, Gehlbach suggests that a small estate affidavit be coupled with an agreement signed by the beneficiaries to the estate. This document should put one person in charge, making him or her the affiant on the small estate affidavit.

It should also make the various responsibilities of the beneficiaries clear. For instance, if there are several surviving adult children, one would be the affiant, another might be responsible for listing and selling the decedent's house, and one might be responsible for selling a vehicle. These agreements help avoid confusion and conflict down the line while settling up the estate.