Probate in New Mexico
The following is a guide/summary of the probate system in New Mexico, and some of the common steps in the process. Please be sure to contact a New Mexico Probate attorney if you have questions regarding any of the information below. Distributing property to beneficiaries after someone dies is sometimes a difficult task without the proper paperwork or guidance in place. A probate estate is the entire portfolio of property held in the name of the decedent with no contractual transference to beneficiaries. Property that remains within a trust or some other non-probate entity or document is not included in the probate estate. More importantly, any jointly held property with survivorship rights and any property with a payment-on-death designation (these include, but are not limited to, IRAs, bank accounts, and life insurance policies) is not included within the probate estate unless the decedent explicitly directed that the property be designated for the estate.
Important Topics Covered Herein:
- Priority of Claims and Expenses
- New Mexico Statutory Allowances
- Claims of Creditors
- Estate Accounting
- Closing the Estate (including Distribution to beneficiaries)
- Miscellaneous Matters
The probate process is required for any estate that has considerable value or specifically titled property, but smaller estates generally do not require this process. The general rule of thumb is that estates smaller than $50,000 in total asset value qualify for this exemption from the probate formalities. These smaller estates can be distributed to beneficiaries without going through any probate process if the circumstances are right. The caveat is that creditors’ claims against an estate can last longer than they would under probate law. For those who prefer to avoid such a time consuming probate experience, one can use a simplified probate procedure, which is available in New Mexico, commonly referred to as “informal probate” or “informal intestacy” when the decedent died without a will. If this is still too much, methods of non-probate transfers, including using will substitutes and preparing an estate plan with regard to New Mexico law, can be prepared by a New Mexico estate planning attorney.
The entire probate process can vary in duration and may take as little as a few months to as long as several years and within this time, an administrator of the estate must carry out the orders of the specified probate court. The administrator is usually referred to as a “personal representative” (or “PR”) of the estate and if appointed in the will, is often referred to as the executor/executrix (the latter being used to describe a female that holds this position). In the past few years more people are opting for referring to the administrator of the estate as simply “personal representative of the estate” for either sex. As far as the law is concerned, personal representative is all that is required.
Any PR must perform a series of tasks in order to determine the probate assets of the estate and then collect the assets in order to provide an inventory list for the probate court. After the assets are gathered, the PR has the responsibility of distributing the proceeds of the estate; these distributions happen in a particular order. The PR will pay costs and expenses of administrating the estate first, distribute the familial allowance (if applicable) next, then distribute personal property that is exempted from the creditors, then proceed with paying off the claims of creditors, and finally distribute the remaining property according to a will or intestate succession. Liquid assets of the estate are primarily used for debts and expenses, but unencumbered assets may be used if this is not enough.
The priority of payment is divided into 6 distinct general classes. They are divided (in order) as follows: funeral expenses, administration expenses, federal and state taxes, expenses of last illness, and then all the other claims that creditors are allowed. The funeral, administration, and tax expenses are all given the highest priority. Nonetheless, NMSA 1978, §45-3-805 clearly provides the following information about priority:
A. If the applicable assets of the estate are insufficient to pay all claims in full, the personal representative shall make payment in the following order:
- costs and expenses of administration, including compensation of personal representatives and of persons employed by the personal representatives;
- reasonable funeral expenses;
- debts and taxes with preference under federal law;
- reasonable medical and hospital expenses of the last illness of the decedent, including compensation of persons attending the decedent;
- debts and taxes with preference under other laws of New Mexico; and
- all other claims.
B. No preference shall be given in the payment of any claim over any other claim of the same class, and a claim due and payable shall not be entitled to a preference over claims not due.
The items are discussed more thoroughly below:
- Funeral Expenses – these are given the top priority and are usually paid first. This occurs before the probating of the will, but funeral expenses must be reasonable when considering the proportional value of the estate. The smallest estates might not have much more than funeral expenses alone.
- Surviving spouses often pay funeral expenses with personal funds, but small estates should seek reimbursement or else the creditors will have a claim on the money without leaving anything for the beneficiaries.
- Social gatherings are allowed as long as the amount from the estate is reasonable compared with the overall value
- Administration expenses – these often include the PR’s fee, which is used to compensate them for managing the estate. Often the executor is a family member who will not charge a fee for these services.
- Attorneys’ fees for probating the will, providing advice on administering the estate, and defense against challenges to the will are included in this category.
- Taxes – federal taxes have priority over state taxes. This also includes unpaid income taxes owed on any income before death in addition to inheritance and estate taxes.
- Unpaid medical expenses – these might be expenses received by the decedent immediately before death.
- Any debts and / or taxes that state law prioritizes
- Expenses of the other remaining creditors
Before creditor claims will be paid from the estate not only do the administrative expenses need to be paid, but so do applicable statutory allowances. The statutory allowances are the familial allowance (NMSA 1978, §45-2-402) and the personal property allowance (NMSA 1978, §45-2-403). Depending on the situation, the familial allowance can provide up to $30,000 for the surviving spouse and minor children of the decedent, and the personal property allowance can provide up to $15,000 for surviving heirs of the decedent. Many estates, when considering the statutory allowances and the administrative expenses, may not have enough assets to satisfy creditor claims; in these situations the creditors may simply be out of luck.
Every state has non-claim statutes, which provides a limited time for creditors to file any kind of claim against an estate. This period is analogous to a Statute of Limitations barrier in civil law suits. After this period is over, claims are barred forever. Compared to trusts which have a much longer claim period, this is a huge advantage for probates.
Any claim is usually limited to the earlier of:
- 1 year after the death of the decedent, or
- Several months after probate proceedings have commenced (and notice is given)
For example, NMSA 1978 §45-3-803 offers creditors a total of 90 days after actual notice is given or (two months in the event of publication) or 1 year after the death of the decedent (whichever comes earlier).
A notice in the local county newspaper is used by the PR of the estate to alert creditors. Section 45-3-801 requires that each notice in the newspaper include the address and personal representative’s appointment information so that creditors can make a claim on the estate. This claim must be offered within a 2 month window after the first publication of the notice or it is forever barred. Nonetheless, the PR has a responsibility and should offer actual notice to the known creditors.
If the creditor can successfully provide evidence that it did not receive proper notice from the PR, then the claim may not be barred. Most states will bar the claims of creditors without notice after a statutory period (typically 1 year) after the death of the decedent. The rationale is because a creditor would be given notification of death when attempting to collect payment within this period.
All expenses and claims of the creditors are placed with the PR who is personally liable for the payment on the expenses. Failing to pay legitimate claims and expenses will lead to the executor being forced to do so out of pocket without providing evidence for the delinquent payment. Depending on the status of the estate, the personal representative may not distribute most property except for the family allowance until the moment right before any estate is closed.
A PR will generally pay for legitimate claims of creditors if there are sufficient funds, but the PR or beneficiaries sometimes pay the claim out of pocket and receive reimbursement directly from the estate. Overpaying the creditors of the estate results in a limited reimbursement to the legitimate amount of the claim. If a claim should not have been made, there will be no reimbursement. Each estate that has a value equal to or less than the claims of creditors will require the PR to pay claims only approved by the probate court.
Funds for expenses and claims generally come from residuary estates (whatever assets are leftover that have not been devised in some other fashion) , but without a sufficient amount, bequests are used in order to fully pay all expenses. Assets, such as real estate, are often sold to pay for expenses unless beneficiaries pay out of pocket. When liquidation of assets is required to satisfy creditors’ claims, the probate process can be delayed; this is especially true when trying to liquidate real estate.
The beneficiaries and the court will both need to know the asset value contained within the estate, what fees and expenses are being paid (whether to funeral or medical expenses), and how much will remain for beneficiaries after the process. In order to do all of this, the PR will provide an initial inventory list, which can be presented to the probate court. Property that is held by a 3rd party is recoverable by the PR of estate; in situations where the 3rd party is not cooperative, the court will compel them to turn the assets over.
Accounting for the estate can include the following:
- Inventory list of all assets
- Payment amounts for family or homestead allowances
- Payment amounts for debts and taxes
Even in situations where there are co-personal representatives, only a single accounting is required. Each co-personal representative must make sure to list all of the property that they possess.
When the court requests an accounting, the PR of the estate must provide information as well as an annual accounting review. All beneficiaries are given copies of the accounting along with any parties that have interests in the estate so that objections can be raised. No court will approve the accounting unless notices have been sent to all interested parties.
If there are any interested parties wishing to object to an accounting, the specific reason for the objection must be offered in the form of a petition to the court. The reason for the objection is required to be plead in the petition or else the court might dismiss any objections.
Even though creditors can petition the court for an accounting of the estate, the creditors of beneficiaries cannot receive access without attaching to the beneficiary’s interest in the estate through another court proceeding, such as a judgment from a civil suit.
Nonetheless, creditors who have been paid may decide, with all interested parties, to a waiver of accounting in order to prevent public disclosure. Every item filed at probate court becomes public record and waivers can keep certain information private for the beneficiaries. Nonetheless, challenges to the probate estate in the future are possible and the PR is not released from liability or discharged from his duty until it is closed.
A notice of final accounting must be sent to all interested parties, including beneficiaries, to give them the opportunity to object before the estate is closed. After the notice of final account and corresponding objection period have elapsed, the PR will present a final accounting to the probate court with all expenses, assets, and distribution of property to the beneficiaries. Small estates may present a summary administration if the requirements are met.
When the balance of the final accounting rests at zero, showing that all assets have been distributed to creditors or beneficiaries, then the court will close the estate and discharge the PR from his duty. At this point there is no more legal liability with the PR.
Distribution to Beneficiaries
In most situations, it takes 1 – 2 years to complete the entire formal probate. Lawsuits and will challenges can greatly extend this time. The PR may not allow the distribution of property until the final accounting is completed and sent to be approved by the court. If there are lawsuits or any pending challenges this is especially relevant.
The PR may decide to partially distribute assets when there are sufficient funds to pay all the creditors. Even if funds are not sufficient to do so, the family or homestead allowance can be paid by the PR during the probate process; as these claims are superior to creditors’ claims so the PR does not have to worry about payment liabilities.
When beneficiaries do not receive their assets in a timely manner, interest can be paid by the estate.
Generally speaking, beneficiaries of a specific bequest receive that property, unless the property is not part of the estate or has been adeemed (this is a term that refers to a process of ademption that deals with an item that was bequeathed in a will that has since been disposed of or sold). Under the principles of ademption, the bequest that has been disposed of, is considered to have been revoked by the creator of the will.
Real estate as an asset will pass directly to beneficiaries upon death, but the title is not clear until the will has been probated. There may be claims against the property for expenses, claims of creditors or taxes, which may prevent title from passing. If more than one person is listed as the beneficiary, then the real estate will be passed to the beneficiaries as tenants-in-common. For people that have property in another state, an ancillary probate or proof of authority may need to be filed in the county where the property is located to clear title. See our article on New Mexico ancillary probate, which is applicable for a decedent that died in another state and where the will was already probated in another court.
The residuary beneficiaries will be granted cash and assets, but if the assets are not easily divided, they must be liquidated into cash. If beneficiaries agree to some other form of distribution, this is also acceptable. Any money owed by the beneficiary to the estate (such as a loan) may be deducted from the beneficiary’s gift by the amount of the debt.
Estates that are low valued are often subject to state law that simplifies the entire process (see our article regarding the small estate affidavit). Interested parties are allowed to present an affidavit showing that they are entitled to receive the property. While the value of an estate that qualifies for this procedure varies, it will not include non-probate assets, any joint account assets, or real property that is held as a joint tenancy or tenancy by the entirety.
Small estate administration can be avoided if the will stipulates that such a tool should not be permitted. If there are any interested parties that object to the administration using a small estate affidavit, including any creditors, then full probate will be necessary with all the time and money costs that come with it.
Miscellaneous Matters: Filing Tax Forms
Personal Representatives are generally required by the IRS to file various tax information forms. Most of these forms are required only when taxes are due, but many states have their own filing requirements. IRS requirements for PRs of an estate are available in IRS Publication 559, titled Survivors, Executors, and Administrators.
Miscellaneous Matters: Investing Estate Assets
A PR is rarely under obligation to invest the funds of the estate and unless otherwise stipulated in the will, shall not do so. Investments often lose value, which would make the PR responsible for payment of the loss. Investing cash in a FDIC-insured savings account is, however, a good option while the estate is being probated. Having an estate account is also useful for accounting and tracking purposes.
While some states and specific wills require investment of the funds by the PR, they will not be held responsible for losses of the investment. However, investment-grade securities are the only available option for PR’s and many states have a list of safe investments without liabilities attached.
A PR who determines that a particular investment of assets could potentially lose value over the probate period can ask the court or beneficiaries for permission to sell the assets. Assets that are not liquid are not under the obligation of the executor to sell, unless there is not enough money available to satisfy creditors’ claims. If losses are foreseen, steps should be taken to reduce or mitigate these losses, but nothing more is necessary.
If there is more than one PR appointed for the estate, the actions of one (in terms of losses incurred) will result in all PRs being held responsible for the losses.
Each probate case is unique and may deal with issues that have not been mentioned here. Be sure to hire a competent New Mexico probate attorney when such complexities arise. It is recommended that the PR retain counsel, as counsel can advise the PR on how to avoid improper distributions, and minimize payments to creditors when applicable; when things are done improperly, the costs to resolve such issues usually outweigh the cost of hiring an attorney in the first place. Be sure to contact our office for a consultation regarding your case.