You've Been Served - Now What?

For most individuals, being served with a Summons is not an everyday occurrence. Unless you work within the court system or at a law firm, legal documents probably arouse some level of trepidation when someone brings them to your door. Hopefully a few basic "Dos" and "Don'ts" will help to ease that fear.  

DON'T ignore the Summons. The worst possible course of action after being served would be to ignore the issue. Even if you are 100% in the right, the problem will not go away if you ignore it. In fact, it will likely get exponentially worse.   

DO read everything in the Summons and Complaint. You should review what the Summons and Complaint have to say. The Complaint outlines the allegations against you.  Although the technicalities and legalities within the Complaint may be confusing, that document will give you an overview of why you are involved in the lawsuit.   

DON'T skip court dates. If the Summons lists a date when you are to appear in Court, make sure you are there. This goes along with the suggestion that you not ignore the Summons. There is never anything good that comes from missing scheduled Court hearings. There could be default judgments entered against you, which might eventually affect your credit. Missing some Court dates may result in the issuance of a body attachment for your arrest. Court dates are not something to take lightly.  

DO calendar dates. If there are dates listed in the Summons, make sure you set a reminder for those dates. I keep an electronic calendar, and Court dates get calendared immediately when they are received. Judges do not like when anyone fails to appear, but that is especially true for lawyers.  

DON'T immediately contact opposing counsel without legal representation. The attorney's office that filed the Complaint does NOT represent you. They represent their client and their client's interests. They have no obligation to explain the legal ramifications of your actions to you, and anything you tell them may be used against you later in the proceeding.

DO contact your insurance company. If you have been sued, you should notify your insurance company about the Complaint. This is not to say that you will necessarily be covered, but prompt notification is usually essential to make sure you are covered if the claim against you is something you are insured against.   

DON'T talk about the lawsuit with other people or online. It may be tempting to fight the Complaint in the court of public opinion. Don't do it. Anything you say to others or publish online may be used against you later in the proceeding. Especially early on in the proceeding, you should only discuss the lawsuit with your insurance company and your attorney.

DO contact a reputable attorney in your area. This is the best advice I can give. An attorney is going to be familiar with the legal process in your county, and will be able to give you guidance on how to proceed. Call and make an appointment to see a lawyer right away. If it is not the type of case their office handles, they would be in a great position to give you a recommendation on who to call. Make sure to give the attorney plenty of time to handle the issue. Tell his office of any upcoming deadlines or court dates when you call to schedule an appointment.

If you follow this advice, you will be well on your way to resolving your issue. Being sued is typically unfamiliar, and initially it can be scary. You may not be able to make the issue go away overnight, but you will sleep much better knowing that you have competent legal representation protecting your interests.

LegalZoom Legal Plans

I read, with interest, an article that was recently sent to me by LegalZoom advocating for consumers to hire attorneys. I'm not sure why I receive emails from LegalZoom, but I apparently do.  I guess it's always good to keep up with what the (purported) competition is doing.

For anyone unfamiliar with LegalZoom, they are a legal tech company that was started in the early 2000s.  Their business model started out as providing consumers with low-cost, online, do-it-yourself legal solutions.  I will admit, they seem have been pretty successful over the years generating revenue.  Your guess is as good as mine on the eventual outcomes of their products.   

After reading the article, you may assume that LegalZoom finally came to their senses and realized that every legal matter does not fit a cookie-cutter, one-size-fits-all, model.  Or, if a savvy reader scans all the way to the end of the article, they might see that LegalZoom is marketing their contract legal plans. 

Interested in what the legal plan had to offer, I went ahead and reviewed the Legal Plan Contract.  For the "best value" of $9.99 a month, the LegalZoom legal plan offers consumers the following:

1.  A 30-minute phone call with a legal plan attorney to discuss a "new" legal matter, which does not involve business matters (there is a different plan for that) or tax matters.  And, if the plan attorney deems it appropriate, a letter that does not exceed 2 pages.

2.  Review of a legal document up to 10 pages for a "new" matter and a call from a plan attorney about the same.

3.  A legal checkup once a year including a 1 hour phone call to discuss the client's "legal portfolio."

4.  A 25% discount on the plan attorney's fees, as reported to LegalZoom, if hired by the client for additional work.

There were several other gems in the Contract, but, with the exception of the auto-renewal language, these were the meat of the agreement.  So, what does a consumer's $120 per year actually get them?  Not much. 

Let's run through a scenario:  When, and if, you actually get on the line with a live attorney, your legal issue is not going to be resolved in a 30-minute phone call.  Even if the contract you have is less than 10 pages (the Legal Plan Contract itself was 6), there will be language in that contract the plan attorney does not like.  He will tell you that he suggests you hire him to help you navigate your issue.  Knowing that his rate would be discounted 25%, he probably reported his rate to LegalZoom as being 25% higher.   

In all likelihood, the plan attorney is not going to be located in the same place you live and will be in some dream location, like Chicago.  Now you are dealing with a non-resident attorney.  Going to their office to meet with them is going to be burdensome, and they will probably charge you to travel to you, if it becomes necessary.  They are not familiar with the community you live in, nor are they familiar with the people who live and work there.

Here's a better suggestion:  If you have a legal matter that needs attention, you are always best served to consult an attorney.  Not sometimes, not only for things that are "complicated," not for things you cannot accomplish on your own.  ALWAYS.  So call someone local and go see them.  Ask friends and family members who they know and trust to handle your issue.  Unless you are delving into the wonderful world of litigation, anybody worth their salt should be able to give you an estimate of what the overall cost of the legal matter will be. 

Sometimes, we just don't want to do things like go to the doctor or see a lawyer.  If you are anything like me, you have probably done a Google search of your symptoms when you aren't feeling well.  After a short WebMD search, and convincing myself that I most likely have sarcoidosis, I usually go see the doctor.  And, thus far, when I leave his office, it is usually with a prescription and a prediction that I will be fine in a few days.   

What Happens When You Die - Prologue

As a follow-up to the recent blog series about the estate administration process (read PART 1), I felt it was worth mentioning that there is a summary type administration process available in Illinois.

If the assets of a decedent are less than $100,000, there is a process that may be utilized called a "small estate affidavit" process. There are many times where a deceased may pass away and only own a vehicle or a nominal bank account in their own name. If that person has no creditors, the law recognizes that administering the decedent's estate may be cost prohibitive.

The Small Estate Affidavit can be presented to a financial institution or the Secretary of State and dictate where the assets of the deceased should be transferred. In some situations, this process is a very cost-efficient way to finalize the affairs of the estate. As with any legal proceeding, a competent attorney can give the best advice about whether or not the scenario lends itself to utilizing this process.

If I can make any broad generalizations about administering a Decedent's estate, it would be that it is always easier if the Deceased had written a Will. This single document usually makes things go much smoother for everyone.

If there is ever a legal topic that you would be interested in hearing about, I always welcome input. Thanks for reading. 

What Happens When You Die Part 6

Previously, in PART 5, we discussed claims against the estate. After the claim period in the estate has run, the Personal Representative is then in a position to pay any outstanding debts and distribute any remaining assets. 

If sufficient assets exist in the estate to pay all the claimants, those claims will be paid first. Once a claimant is paid, they will file a Release of their claim with the Personal Representative or the Court, depending upon how the claim was filed.  

Thereafter, the remaining assets will be distributed to the beneficiaries/heirs. The Personal Representative has an obligation to account to the beneficiaries/heirs of the estate. This can be accomplished in one of two ways.  

The Personal Representative can send an Accounting and Proposed Distribution to all of the beneficiaries/heirs and ask that they sign off on that proposal. The Accounting will outline what assets have come into the control of the Personal Representative, what claims and expenses were paid, and how he or she is proposing to distribute what is left. If the beneficiaries/heirs all sign off, the Personal Representative can make the distributions and ask the Court to close the estate.

The Personal Representative may also file the Accounting and Proposed Distribution with the Court and ask for Court approval of that proposal. The Personal Representative, with the assistance of his or her attorney, would set a hearing before the Court to ask for that approval. All the beneficiaries/heirs would receive notice of the time and place of that hearing. They would be entitled, at that time, to raise any objections to the proposal. The Court would then make orders about how the estate should be distributed. 

At this point, our foray into the estate administration process has come to a close. Hopefully, this series has helped to somewhat demystify the process. Thanks for reading.   

What Happens When You Die Part 5

Welcome back. The wonderful world of taxes is everyone's favorite topic. When it comes to estates and estate administration, "taxes" can take on many different meanings. Let's explore a few.

Estate Taxes

In the system we currently operate under, estates are potentially subject to a federal estate tax. Since we live in Illinois, an estate also may be subject to a state estate tax. (Many states do not have a state estate tax, but we have to fund the Chicago machine.) Any individual who passes away owning total assets that are less than $11,180,000 is currently exempt from any federal estate tax. This amount has recently increased substantially, and will affect only a small percentage of estates. The State estate tax exemption amount in Illinois is $4,000,000. These taxes, if imposed, are extremely punitive. (It is worth noting that this is a tax on money you were already taxed on during your lifetimes. Call your Congressman and tell him how ridiculous this is.) 

These estate tax exemption amounts can, and do, change from time to time. Even over the last ten years, these amounts have varied drastically.

Income Taxes

When an individual dies, the Personal Representative is charged with filing income tax returns for the deceased's last year of life. Those tax returns would be filed, if necessary, just as they were filed when the decedent was living.

In addition to filing a personal income tax return, the Personal Representative is also well advised to file income tax returns for the estate each year. The estate is a separate, taxable entity, so any income earned on assets of the estate during the administration of the same will need to be accounted for. Typically, the income is passed through to the beneficiaries by this filing. 

Inherited Assets and Tax Basis

With the exception of the taxes outlined above, there is no "inheritance tax" on assets inherited by a beneficiary. I supposed the government decided taxing assets 2-3 times was sufficient. An added benefit to a beneficiary of an estate is that the beneficiary gets a step-up in tax basis for inherited assets to the value at the date of death. (If that doesn't make sense, keep reading.)

The step-up in basis can be very advantageous if a beneficiary ever decides to sell an asset that has appreciated over the course of the deceased's lifetime. This is probably best illustrated with an example:

Deceased owned 40 acres of farm ground that he inherited from his father in 1953. The Deceased's tax basis in that asset would have been the value of the asset in 1953, which we will estimate to be $20,000. So, had the Deceased sold the asset in 2018 for $400,000, it would have been sold with a large gain. The Deceased would have been taxed on the difference between the sale price and the tax basis, or $380,000. If the Deceased's only son inherited the farm ground in 2018, after his father passed away, the son's tax basis in the ground is now the 2018 value, or $400,000. So, if the son sold the ground for $400,000, he would have no gain on the sale, and therefore no tax.

Next time, we will discuss finalizing the estate and how distributions are typically made.

What Happens When You Die Part 4

In our last installment (Part 3), we discussed the attorney's role in the estate administration process.  As promised, we will now explore how the debts of a deceased individual get paid.

As we have previously discussed, the assets of the estate are the assets that the deceased owned in their name only. Those assets, prior to any distributions to beneficiaries, are available to pay the debts that the deceased incurred during their lifetime. 

When an estate is opened, the Personal Representative (with the help of the attorney) is required to publish a notice of the case in a newspaper of general circulation within the County. That notice is known as a Claim Notice, and is published once a week for three weeks.  The first date of publication starts what is known as the "claim period." The claim period runs for six months from the date of first publication. It is a notice to the world that the estate is open, and anyone who believes they are owed money by the deceased must file a claim within that timeframe.

That's all well and good, but should people who are owed money be scouring the legal notices of the local newspaper to make sure they don't miss out? Maybe. However, the requirements for debts that the Personal Representative knows the deceased had are handled a little differently. It is a requirement that the Personal Representative send a Claim Notice directly to those known creditors. The creditor then has the burden of making a claim against the estate within a certain time period if they want to try to get paid. 

In addition to debts that are owed, there are various other claims that might be made against the estate. These might include spousal awards, minor child awards, etc. These are somewhat specialized, and I am not going to get into too much detail here, but they are worth mentioning.

If a creditor fails to make a claim after the requisite claim period runs, the creditor is barred from ever making a claim against the estate. So, after the claim period runs, the Personal Representative then knows what, if any, debts need to first be paid. They can then pay those claims and distribute the remaining assets accordingly.

But what if there are not enough assets in the estate to pay all the debts? Good question—I'm glad you asked. If there are not enough assets in the estate to pay the claims, the estate is known as an "insolvent" estate. We then must turn to our state law to determine which class any claims fall in. The law assigns a priority to different claims based on their class. For example, funeral expenses, costs of administration, and attorneys fees are all Class 1 claims. So, these types of claims would get paid first before we moved to Class 2 claims.  If you reach a class of claims that there is not enough money to pay, those claims get paid out pro-rata based on the available funds. Anyone in a lower class would lose out. 

As you can see, it is extremely important for the Personal Representative to wait to distribute assets until the claim period has run, especially with an insolvent estate. If a Personal Representative were to distribute assets early and be unable to reclaim those assets to pay debts, the Personal Representative would then become personally responsible for the amounts previously distributed.  Obviously, this is not a good scenario.

In our next installment (Part 5), we will discuss everyone's favorite topic: taxes.

What Happens When You Die Part 3

In the last installment (Part 2) we discussed the role of the Personal Representative in an estate administration. So, if there is a Personal Representative appointed for the estate, what does the Attorney do?

In practice, the attorney prepares documents for the Personal Representative. These may include Petitions, Affidavits, Notices, Accountings, Reports, Letters, etc. The laws of the State place many requirements on the Personal Representative, and the process of administering the estate must be followed. 

The attorney is available to guide the Personal Representative through the process of administering the estate of the deceased. As indicated in previous posts, the probate process is a procedure that is very foreign to most people. An experienced probate attorney can answer questions as the process moves forward and help the Personal Representative avoid potential pitfalls.  

As an example, a beneficiary may contact the Personal Representative and inquire about their distribution from the estate. The Personal Representative would be well advised not to distribute any funds from the estate until the claim period runs. (More to come on this later.)  

As with all cases, issues do arise, and the attorney is responsible for guiding the Personal Representative through the process. Sometimes the attorney can take on tasks that the Personal Representative may not be able to accomplish or has not been able to accomplish. For instance, some institutions or governmental agencies are very difficult to deal with. (The IRS immediately comes to mind.) It is sometimes much more expedient for the attorney to deal with these individuals than have the Personal Representative make multiple calls to resolve an issue.  

Many times, the attorney can attempt to mediate family disputes as an uninterested third party. This usually relieves the Personal Representative from having to deal with these types of issues in an already stressful time.  

The attorney's role in the process is varied, but it can be extremely helpful. I am somewhat biased, but the guidance and advice of an attorney throughout this process is indispensable. 

In Part 4 we will discuss how claims against the estate may arise, how they get satisfied, and their timing.