New Illinois Small Estate Affidavit Coming in 2015
A significant change is coming to the small estate affidavit form and procedure in Illinois. On August 1, 2014, Governor Quinn signed into law an amendment to the Small Estate section of the Illinois Probate Act (755 ILCS 5/25-1) that changes the small estate affidavit form and procedure (statutory additions and
deletions shown at link). The new form and rules will apply to decedent’s estates with a date of death on or after January 1, 2015. The existing form will continue to be used for small estates with dates of death in 2014 and earlier.
A small estate affidavit (SEA) is a non-judicial estate collection and settlement procedure in Illinois available as a possible alternative to probate when the total value of the personal estate (non-real estate in decedent’s sole name) is less than $100,000 (read more about small estate affidavits here). Under a SEA, an “affiant” makes a number of required representations — including listing the estate’s assets, attaching the will (if any) and directing how to disburse the estate’s assets to the heirs (if no will) or legatees (under the terms of the will). The SEA is then submitted directly to each final institution or other third-party from which release and distribution of the asset is requested.
The basic asset maximum threshold of $100,000 will remain unchanged under the new SEA form. The most significant changes under the new SEA address the handling of estate debts and expenses and the new collection and distribution mechanism available to the affiant.
The Paragraph (7 and) 8 Problem: No Unpaid Claims
Under the existing SEA, paragraph 8 reads: “There is no known unpaid claimant or contested claim against the decedent, except as stated in paragraph 7.” In turn, paragraph 7 addresses only the payment of funeral expenses.
The resulting conundrum is both perplexing and obvious — there is no mechanism within the SEA for payment of creditors’ claims against the estate (e.g. credit cards, medical bills, etc.). Short of perjury, an affiant seeking to settle a small estate that has known claims must arrange to satisfy the claims before signing the SEA. In many situations, this is an insurmountable hurdle to using the SEA.
Enter the New Paragraph 7…
Under the new SEA, paragraph 7 is expanded to enable (and require!) the affiant to list all types of unpaid claims against the estate. The listing is arranged by statutory classification based on the type of each claim. The classification system provides a hierarchy for claims payment from first-class claims (funeral and administration expenses) through seventh-class claims (non-priority claims, such as credit cards). This parallels the classification system used by a personal representative to prioritize claims payments in a probate estate.
And a New Procedure for Disbursements Under the SEA
Under the existing SEA, the affiant uses paragraph 11 to instruct asset holders to distribute the assets directly to the heirs or legatees. Case closed. However, under the new revised form, the affiant has the option instead to direct the release of assets to the affiant directly (not to the heirs or legatees). The affiant then must first issue payments on the claims listed in paragraph 7, and then distribute the balance, if any, to the heirs or legatees listed in paragraph 11. If the small estate is insufficient to satisfy all listed claims (an insolvent estate), then payment is made in full to each class of creditors possible and then pro-rata among the next class of creditors that cannot be satisfied in full (same as probate).
With Great Power Comes Great Responsibility (and Liability?)
The affiant’s new ability to direct the release of assets to himself or herself to facilitate the payment of claims is a significant new grant of power without inherent court oversight or notice requirements. Given the new process of paying creditors from the small estate assets, the new power seems necessary. But it is not without risk of abuse or misuse.
In an attempt to firmly communicate duties to the affiant — and in an attempt to mitigate the risk of loss to creditors, heirs, legatees and others — two new additional paragraphs in the form of instructions and liability warnings have been added to the SEA form.
The first is immediately following the paragraph 7 listing of creditors, as follows:
7.5 I understand that all valid claims against the decedent’s estate described in paragraph 7 must be paid by me from the decedent’s estate before any distribution is made to any heir or legatee. I further understand that the decedent’s estate should pay all claims in the order set forth above, and if the decedent’s estate is insufficient to pay the claims in any one class, the claims in that class shall be paid pro rata.
The real teeth, however, is in paragraph 10.5, which is required to be printed in bold and in not less than 14-point font (the equivalent of written shouting?), as follows:
10.5 I understand that the decedent’s estate must be distributed first to satisfy claims against the decedent’s estate as set forth in paragraph 7.5 of this affidavit before any distribution is made to any heir or legatee. By signing this affidavit, I agree to indemnify and hold harmless all creditors of the decedent’s estate, the decedent’s heirs and legatees, and other persons, corporations, or financial institutions relying upon this affidavit who incur any loss because of reliance on this affidavit, up to the amount lost because of any act or omission by me. I further understand that any person, corporation, or financial institution recovering under this indemnification provision shall be entitled to reasonable attorney’s fees and the expenses of recovery.
The attorney fee recovery provision is new, and may incentivize disgruntled creditors who previously might not have bothered to pursue an unpaid claim due to cost considerations.
Additional Changes Under the Revised Statute
- The affiant must indicate his/her relationship to decedent or estate (para. 10.3).
- The language protecting and releasing third parties is strengthened and extended to all who rely in good faith on a SEA in substantial compliance with the form.
- The language and related statute dealing with safety deposit boxes is synced up to allow the affiant to obtain access.
- The SEA is now required to be notarized (which was always common practice, but never explicitly required).
Some Final Observations and Thoughts
Overall, the changes are going to make the SEA available to more small estates. But, will using the SEA to settle a small estate be more advisable? Not always. A potential affiant will need to be fully cognizant of his/her additional responsibilities and potential for liability. The affiant should “take it slow” to help avoid missing creditors. After weighing the pros and cons, probate may be preferable even in some situations that might otherwise qualify for a SEA — there is no minimum dollar threshold to probate.
The practical procedure for an affiant to collect assets, pay debts and distribute the balance is not well-defined under the amended statute. The affiant cannot set up an estate bank account with a separate Tax ID number in the way that a court-appointed executor does — there is no such small estate entity for an account to be titled.
Rather, the affiant simply does this on his or her own. Best practice will likely be for the affiant to set up a new segregated checking account in the affiant’s own name to collect assets, pay listed debts and distribute the balance to the heirs or legatees. Ideally, once collected, the assets would be paid out ASAP per the terms of the SEA. Still, the worrywart in me says that even a well-meaning affiant could die, become disabled or get sued before completing the process. The result would be a hot mess.
Given the added layers of complexity and potential for liability, it is more important than ever to consult and retain counsel, and the new SEA allows attorney’s fees to be paid through the SEA as a first-class claim. Keep in mind that the new procedure is only available for deaths in 2015 and after. SEA’s for dates of death in 2014 and earlier must use the old form, even for SEA’s executed in 2015 and beyond.