Complete Home & Office Legal Guide/Complete Home and Office Legal Guide (Chestnut) (1993).ISO/tut/probate.tut

Text File | 1993-08-01 | 8KB | 148 lines

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               TUTORIAL ON "HOW TO AVOID PROBATE"

    A very popular and controversial book, "How to Avoid Probate"
by a fellow named Dacey raised American's consciousness about the
process of probate. The good news is that in a few paragraphs of
text I can explain virtually everything contained in all of the
works written for lay people about living trusts. The concepts
are fairly simple but it is important to fully grasp all of the
points made.

    "Probate" is the legal process in which a person's estate, if
any, is settled after their death. "Probate" does cost money and
can delay the settlement of the affairs of an estate while forms
are prepared and Court clerks look over them. A major (and
perhaps the most valid criticism) objection to probate is that it
can open up a person's financial affairs to the public record.
Everyone has heard horror stories about probates costing 75% or
more of the value of the estate. "The lawyers got rich while the
grieving widow was left penniless." Well, that can happen;
however, the conclusion that all steps, including very
convoluted, expensive, "probate avoidance" schemes are needed by
everyone just isn't true. The horror story in which the widow
spent thousands of dollars on probate fees is usually a case of a
person dying intestate, or, with two persons who both think that
they are married to the same man! (It happens all the time. In
the typical scenario a fellow has two families a few hundred
miles apart and when one side thinks that he is spending a few
weeks out on the road, he's really with the other family. I am
not being sexist here-- I have been involved or heard about 7 or
8 cases like this in my career and the polygamist was always the
man.)

     Most cases in which probate drags on would drag on if the
person had a will. The usual case is that someone disinherits,
close to their death, a natural object of their affection, and
the family, who probably were feuding like the Hatfields and
McCoys continue to slug it out thereafter. This type of
internecine conflict would happen even with a trust. HAVING A
VALID LIVING TRUST DOES NOT OUST THE COURT SYSTEM OF
JURISDICTION TO CONSIDER CLAIMS THAT THE TRUST IS INVALID FOR
WHATEVER REASON.

    Dacey's book, which was critical of the legal profession and
the court system, suggested that persons execute "living
revokable trusts." (Also called "inter vivos" trusts.) The
argument in favor of revokable living trusts is that since there
is no property in the person's estate (the trust owns it) there
is no probate. Instead, you appoint yourself the trustee during
your own life and then at death your beneficiaries or a
corporate/bank trustee deed the property to your beneficiaries,
or, the trust continues to run, making distributions to your
heirs. Even better, the trustee can be given the discretion to
decide what to distribute to whom, if that's what you want.

    Well, almost. First of all, most probates are fast and
pretty cheap. Second, if the family is ugly, it's going to Court
anyhow, period. If someone has the filing fee and a notepad and
a 39 cent Bic pen (a trademark of Bic) they can sue, living
trust or not. Period. So, a living trust cannot guarantee that
there will never ever be a probate. Let's say that you have a
living trust. But you forget to deed over some property that you
inherit or acquire to the living trust. An instant probate is
caused. A legitimate attorney/estate planner will insist that in
addition to a living trust that you have a "backup" will. Our
simple wills may just fit the bill.

    There are a number of reasons which make living trusts very
attractive. For example, the trust should designate a trustee who
will take over during the incapacity of the maker in his or her
lifetime. In addition the living trust can make arrangements in
case the any of the beneficiaries are spendthrifts (that is,
they will spend everything they get and someone needs to parcel
the $$$$ out to them) or have creditors or spouses etc. that
shouldn't get at the money, or are minors. This avoids the
necessity of a guardianship being set up for the minors or
incompetents who might inherit.

    A few more words about living trusts. Many people are so
(over) concerned about "avoiding probate" that they spend large
amounts of energy on that and forget to watch out for estate
taxes! (Yes, this is very true and I've seen it.) If your estate
including the value of life insurance exceeds $ 600,000, then
your beneficiaries will have to pay estate taxes. There are many
ways to avoid estate taxes which are quite legal and simple. This
is the subject of another tutorial. Needless to say if your
estate exceeds this amount then you need very good accounting and
estate tax planning advice. Get it ASAP, or else you could end up
donating, unnecessarily, 50% or more of your estate to the
I.R.S., instead of your heirs.


    There are disadvantages to a living trust. First of all, you
will need to pay for the drafting of both a living trust and a
will, for the reasons explained above. (YES, OUR PROGRAM
PREPARES ALL OF THESE. STILL, AS WE SAY IN THE MANUAL, LET AN
ATTORNEY AT LEAST LOOK AT THEM, YOU'LL SAVE $$$ BUT NOT GOOF
BADLY.) Then, every time that you acquire some property, you
must be sure that it is deeded to the trust. In addition, trusts
are taxable entities in their own right. Therefore, another set of
tax returns have to be filed each year.

    The worst possible way to avoid probate is to jointly title
assets. In this variety of lack of estate planning, a person
decides who they would like to have as their heirs, and then
jointly titles assets to them. There are a number of ways to do
this.

    First of all, joint tenancy with right of survivorship. A
very bad move. Here's why. You jointly title your house with your
only child. They get married--- that asset could be divided by a
Divorce Court. How would you like to have your home co-owned by
your child's ex-spouse? You and your only child get along now.
What happens if you have a disagreement with your only child?
Yes, it can in fact happen. Then what? You couldn't sell the
property without your child's permission.

    There's even a problem with a life estate. That is, where you
deed property to yourself for your life, with the property
passing to heirs on your death. However, you cannot sell the
property without the remaindermen's (that's the people who get
the property when you pass away, the people to whom the
"remainder of the estate" is passed) consent.

    Let's assume that there will never be the slightest
possibility of a family disagreement. There is another reason NOT
to jointly title assets. In a joint tenancy with right of
survivorship, what happens if your child passes away first?

    In most cases, a will is adequate for estate planning.
Honestly. Wills are much cheaper to draft than are living trusts,
and impose no lifetime paper work requirements. A living trust is
a good idea if you fear that either you or your spouse will
experience temporary or permanent disability. In this case, your
trust can provide that trustees, either family members or a bank
or professional can manage your efforts.

   In summary----

1. For larger estates, living trusts
2. For most estates, a will (update it every few years or at
least review it)
3. Avoid jointly titling assets

   We are presently preparing the full text of the Uniform
Probate Code as a statute in the program.