Downs Law Firm, P.C.
Downs Law Firm, P.C.
Seventy-seven percent of respondents in a recent survey said estate and legacy strategies were important for everyone, not just wealthy individuals, yet only 24% said they had taken the basic step of designating beneficiaries for all of their accounts.
It was reported on the news recently that some of Aretha Franklin’s family members have found what they believe to be her will. It was handwritten, stained, and crumpled up in a couch. The courts may or may not choose to honor it, depending on whether or not they are able to verify its authenticity.
Probate is what’s left over At the end of the day, there may be some things left over to go through probate, meaning they didn’t avoid the process by title or contract. What’s so bad about that? I don’t know that there’s anything so terrible about probate. It is a necessary process to transfer title of property if no other options have been exercised. People who I have worked with in the Probate Court are generally helpful and dedicated. The Court imposes deadlines which make the case move through the system. However, the two main reasons people want to avoid the probate court, or any other court process are money and time. I often here attorneys say that probate is not that bad in Maryland. Actually, I only hear attorneys say that. In Maryland there are various court costs, bonding fees, probate fees, and attorney’s fees as well as Personal Representative’s commissions. The highest of these fees are often attorney’s fees. What’s so bad about that? The allowable fees for attorneys and Personal Representatives are combined is about 3.6% of the assets. For example, suppose the deceased person has a house worth $300,000 and a mortgage of $250,000, which figure is used to calculate the allowable fees and commissions? The formula is based on the gross assets, not the net assets. The allowable commissions and fees for a $300,000 probate are $11,880. In this example, the allowable fees are 24% of the net value ($11,880/$50,000). I generally estimate 2% to 4% as the administrative expenses for most families in probate. Additionally, probates ordinarily take somewhere between 9 months and 18 months to complete. If assets are complicated in nature, the time could be much longer. For small Estates, meaning under $50,000, the process can be much shorter. An additional reason some of my clients want to avoid probate is that your Last Will and Testament is a public record. Someone going to the Courthouse can read your Will, see the values of all the assets passing through the court system, learn the timing of distributions, and find out who gets what and when to they get it. This is more information than some many of my clients want to share with the public.
Probate is what’s left over I draw about ten frying pans a week on a legal pad. This is not due to my great artist ability. Last week I explained that Wills work through a process called Probate. When someone dies, property may be transferred by title, such as the transfer of a house to a spouse when the first spouse dies. It is easy and essentially automatic. If a person dies and the title doesn’t convey ownership, then a contract may do so instead. More about that next week. There are only three ways assets transfer at death: By Title, by Contract, or by Probate. If the title and contract don’t transfer ownership, then a probate estate does. If a decedent as a will, this is activated then: if not, then the law of the state of they lived in writes one for them. Since the dead person is not here to transfer title, that role is given to the Personal Representative. Once appointed, that person can sign contracts, deeds, tax returns, etc. All this is done with the oversight of the probate Court. Probate is not bad: it serves a necessary function. Many year ago, I was part of a bar association discussion years ago about probate and its avoidance. I was advocating the use of Revocable Living Trusts as reasonable alternatives to Court supervised transfers. I felt like a baby harp seal hunter at a PETA meeting. The outrage and venom directed at me for suggesting that Probate was to be avoided” were palpable. Most of the lawyers present, and the then Register of Wills, insisted as a strong refrain that “Probate is not that bad…” The only people I have heard insist that this is true are attorneys and Probate Court personnel. I pointed out the hypocrisy of this by position by asking “How many of you have your life insurance policies and/or retirement plans payable to their probate estates?” Of course, no one did so, because naming a beneficiary was simple and the probate Court could be avoided. If probate isn’t so bad, then why no? Maybe because of administrative fees, Court costs, Attorney fees, Personal Representative Commissions, which in Maryland can be 3.6% to 4%. Maybe because the court process can cause long delays before funds are available: from seven months to several years is not unusual. Finally Probate records are public, meaning that your neighbor can go to the Court, read your will, find out who is getting what, when they get it, and who is in control. For some of my clients, keeping this private is preferable. Is short, probate is time consuming, expensive and is completely public. The Court process provides supervision, which is some cases is badly needed. Most of my clients name people that they trust and don’t want supervised. To weigh out your options, its best to seek the advice of an estate planning attorney. Note: This is the Second of a Series of Five to be published
Administrating an estate or trust? Let’s take a look at just how hard it can be. People often name a family member or close friend as an executor or trustee. However, sometimes it is wise to think it through and consider the possibility of a professional administrator as a trustee, according to Kiplinger in “Why You May Need a Pro Trustee: Trust Administration is Not Just Common Sense.” The article details some of the problems that can arise despite good intentions. Let’s call our client Linda. She wants to identify a successor trustee. Linda’s parents had identical estate plans with trusts that were set up for Linda and her two siblings Jack and Diane. Linda was the family’s responsible one, so she received her share in each estate outright and served as the trustee for the other separate trusts, two for Jack and, two for Diane since the second of her parents died some 10 years ago. This is not unusual—parents will often give the responsible person in the family, the role of the trustee when their siblings are seen as less likely to perform the necessary tasks. These four trusts were close in value, with about $440,000 in each. They were identical in other ways: the trustee had the power to pay from income and principal each year for the beneficiary’s health, maintenance and support, but there was no requirement to distribute anything. Linda had done a great job, in keeping with her reputation. For 10 years she recorded every transaction. Because she knew her siblings resented her serving as trustee, she never paid herself a fee. Linda was tired, and she wanted to let someone else be in charge of the trusts. When the trusts were presented to an institutional trust officer, it was clear why the trusts had never been merged. Linda’s mom had executed an amendment to the estate plan after Linda’s dad died that ensured that when these siblings passed (that would be Jack and Diane), the trusts would pass to their descendants. Linda’s mom executed this amendment so that when Jack and Diane passed away, the trust from the mother would be divided among her surviving children. This meant that Linda would get another share, and Jack and Diane’s children would get less benefit from that trust. Linda’s mom thought she was doing a good thing. However, her decision put Linda in a bad position. She became an “interested” trustee, with the power to make decisions that would eventually put more funds into her pockets or diminish her share. Of course, that would only happen, if she outlived her siblings. Linda had been diligent and responsible, insuring that the trusts had the exact same asset allocation and investments, paying out income from the trust and when one called asking for money, giving both the same additional amount from the mother’s trust and the father’s trust, even though any distributions made from the mother’s trust make her less likely to receive a larger share in
Probate is what’s left over I draw about ten frying pans a week on a legal pad. This is not due to my great artist ability. We offer fee consultations to our client’s named financial successor after a person dies. That would be the Personal Representative, or executor, of a Last Will and Testament, or the Successor Trustee of a Revocable Living Trust. For trust clients, they are almost always the same person(s). In those consultations, I draw a frying pan. You see, Wills work through a Court process called probate. They are not effective until a Court appoints you as the actual representative, in Maryland by passing an Order and issuing Letters of Administration. Probate is the process of “Proving” the Will, meaning that interests parties are notified, and have a chance to object to the will. It is not necessarily good or bad. It is necessary if a will is to be used to distribute assets. Assets don’t necessarily go through this process: Often nothing does. The process is avoided by either Title or Contract. Title is by the form of ownership: Most husbands and wives own virtually everything this way as tenants by the entireties (T by E). If your spouse dies and the house, bank accounts and vehicles are in both names, then they are not in the frying pan. They get diverted by the title. You can own assets jointly with rights of survivorship (JWROS). At the death of one joint owner, the assets go to the survivor. You can also own property with another person as tenants-in-common, meaning that title of your portion does not convey by title at death. Like everything in life, title transfer can be good and bad. It’s great because it’s free. It’s bad because it can have unintended consequences. I transfer my house to myself and my son as joint owners, to “avoid probate”. My son has a car accident, and suddenly I may lose my home because my son owns part of it. Adding someone to the deed is simple, but not necessarily a good idea. I had a client who had two nieces that she put on her two investment accounts, each with a balance of about $200,000. One niece was named as a joint owner of each account. She later entered a long-term care facility. Her one niece dutifully paid the bill for over a year. The other decided to wait and see. When my client died, the niece who was faithful to her got next to nothing, while the other got her full account. How do you think they are now getting along? Also, it may be that a beneficiary should receive their inheritance in a controlled manner. Special needs beneficiaries need may want their benefits preserved. Someone with a drug problem might be best served with specific controls. A child getting divorced might want to buffer their inheritance. Title transfers are simple but don’t allow for any controls. They say there is more than one
For a young family, when is the right time to put together an estate plan? Right before you die is the correct, but not realistic, answer. Estate planning is especially important for families with young children, and to be updated to pass on assets in later years, according to the Lodi News Sentinel in “Planning for what comes last.” Think of an estate plan as a gift for the next generation, as is making funeral plans in advance. I used to avoid doctor visits, until a friend pointed out, the visit is not just for me, but the whole family. Doing what you should is for them. You can’t assume that your adult children will know what you want for your funeral and you don’t want them to have to make decisions during a time of great sadness. These are gifts, that parents who love their children can give: taking care of the business side of their lives and their deaths, so that a difficult time is manageable. Once you have worked with an estate planning attorney to prepare all the necessary documents and made funeral plans, the next step is to share that information with your heirs. It’s not an easy conversation to have. Most of us tend to keep that side of our lives private from our kids, no matter how old we become. However, sharing this information can keep families from fighting in the future. It is not easy to know how much different members of the family can handle and who can be trusted with what information while you are living. There are times when people who appear completely selfless suddenly become greedy when an inheritance is being probated. It’s hard to anticipate this. However, there are several things that you can do now to make it easier for those you love. Have a will and if appropriate, a trust, created with an estate planning attorney. Don’t neglect a power of attorney for health and for finances. Make funeral plans and tell your family about those plans. Make an end-of-life plan. Don’t leave it to others to make these difficult decisions, if you know what you want to have done. Plan for your pets, in case they outlive you. Protect your digital assets by obtaining the correct information for all your social platforms, so your loved ones are empowered to access and close accounts after your death. An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances. Reference: Lodi News-Sentinel (July 1, 2018) “Planning for what comes last”
There are some important documents that should always be in your estate plan to protect your family. However, some people still leave them out, according to Consumer Reports in “8 Essential Steps for Estate Planning.” A survey from Caring.com showed that as many as 60% of adults don’t have estate planning documents. When they asked families with young children, fewer than one in ten have even designated a guardian to take care of their children, if both parents should die. Worse yet, we have worked with numerous cases where people thought they had documents in place, but due to their own misunderstanding of the law or requirements, their plans were agonizing disappointments of what should, and could have been… What happens when there’s no planning in place? Even the simplest things become more complicated, and complicated things become financial and legal nightmares. When there’s an emergency and decisions need to be made, the entire family is subjected to more stress and costs than would otherwise be necessary. Here are the eight steps you need to take, right now, to protect your family: Get the professional help you need. The change to the tax law may or may not impact your family and your estate plan, but you won’t know until you sit down with an estate planning attorney. Trying to do this online, may seem like a simpler way, but you will not have the same peace of mind as when you sit down with an experienced attorney—and one who knows your state’s laws. Create a will. This is a legal document that explains how you want your assets to be distributed after you die. It names an executor to carry out your instructions. If you have minor children, this is an especially important document, since it is used to name their guardian. If you have no will when you die (called dying “intestate”), then the laws of your state determine how your assets are distributed and who rears your children. Depending on where you live, your spouse might not automatically inherit everything. Discuss whether you need a Revocable Living Trust. In most states, when you pass away, your estate goes through a process called “probate.” The courts basically review your estate plan and determine whether everything looks right. The problem is that your will becomes a public document—and so does information about your assets. Some people prefer to keep their lives private by transferring assets to a revocable living trust, which distributes assets according to your instructions at your death. Titles to the assets must be changed so they are “owned” by the trust. This is known as “funding” the trust. You still retain complete control of your assets, since you are the trustee. However, if you fail to retitle assets, the estate goes through probate. You will also still need a will to protect your minor children. Review your beneficiaries. Whether you remember it or not, when you open many different kinds of accounts—banking, investment—you assign a beneficiary