How Can I Minimize My Probate Estate?

How Can I Minimize My Probate Estate?

Having a properly prepared estate plan is especially important if you have minor children who would need a guardian, are part of a blended family, are unmarried in a committed relationship or have complicated family dynamics—especially those with drama. There are things you can do to protect yourself and your loved ones, as described in the article “Try these steps to minimize your probate estate” from the Indianapolis Business Journal.

Probate is the process through which debts are paid and assets are divided after a person passes away. There will be probate of an estate whether or not a will and estate plan was done, but with no careful planning, there will be added emotional strain, costs and challenges left to your family.

Dying with no will, known as “intestacy,” means the state’s laws will determine who inherits your possessions subject to probate. Depending on where you live, your spouse could inherit everything, or half of everything, with the rest equally divided among your children. If you have no children and no spouse, your parents may inherit everything. If you have no children, spouse or living parents, the next of kin might be your heir. An estate planning attorney can make sure your will directs the distribution of your property.

Probate is the process giving someone you designate in your will—the executor—the authority to inventory your assets, pay debts and taxes and eventually transfer assets to heirs. In an estate, there are two types of assets—probate and non-probate. Only assets subject to the probate process need go through probate. All other assets pass directly to new owners, without involvement of the court or becoming part of the public record.

Many people embark on estate planning to avoid having their assets pass through probate. This may be because they don’t want anyone to know what they own, they don’t want creditors or estranged family members to know what they own, or they simply want to enhance their privacy. An estate plan is used to take assets out of the estate and place them under ownership to retain privacy.

Some of the ways to remove assets from the probate process are:

Living trusts. Assets are moved into the trust, which means the title of ownership must change. There are pros and cons to using a living trust, which your estate planning attorney can review with you.

Beneficiary designations. Retirement accounts, investment accounts and insurance policies are among the assets with a named beneficiary. These assets can go directly to beneficiaries upon your death. Make sure your named beneficiaries are current.

Payable on Death (POD) or Transferable on Death (TOD) accounts. It sounds like a simple solution to own many accounts and assets jointly. However, it has its own challenges. If you wished any of the assets in a POD or TOD account to go to anyone else but the co-owner, there’s no way to enforce your wishes.

An experienced, local estate planning attorney will be the best resource to prepare your estate for probate. If there is no estate plan, an administrator may be appointed by the court and the entire distribution of your assets will be done under court supervision. This takes longer and will include higher court costs.

Reference: Indianapolis Business Journal (Aug. 26,2022) “Try these steps to minimize your probate estate”

The Risks of Creating Your Own Estate Plan
Living trust and estate planning form on a desk.

The Risks of Creating Your Own Estate Plan

We call it the brother-in-law syndrome: your brother-in-law knows everything, even though he doesn’t. He tells anyone who’ll listen how much money he’s saved by doing things himself. Sadly, it’s the family who has to make things right after the do-it-yourself estate plan fails. This is the message from a recent article titled “Dangers of Do-It-Yourself Estate Planning” from Coastal Breeze News.

Online estate planning documents are dangerous for what they leave out. An estate plan prepared by an experienced estate planning attorney takes care of the individual while they are living, as well as taking care of distributing assets after they die. Many online forms are available. However, they are often limited to wills, and an estate plan is far more than a last will and testament.

An estate planning attorney knows you need a will, power of attorney, health care power of attorney, a living will and possibly trusts. These are essential protections needed but often overlooked by the do-it-yourselfer.

A Power of Attorney allows you to name a person to manage your personal affairs, if you are incapacitated. It allows your agent to handle your banking, investments, pay bills and take care of your property. There is no one-size-fits-all Power of Attorney. You may wish to give a spouse the power to take over most of your accounts. However, you might also want someone else to be in charge of selling your shares in a business. A Power of Attorney drafted by an estate planning attorney will be created to suit your unique needs. POAs also vary by state, so one purchased online may not be valid in your jurisdiction.

You also need a Health Care Power of Attorney or a Health Care Surrogate. This is a person named to make medical decisions for you, if you are too sick or injured to do so. These documents also vary by state,. There’s no guarantee that a general form will be accepted by a healthcare provider. An estate planning attorney will create a valid document.

A Living Will is, and should be, a very personalized document to reflect your wishes for end-of-life care. Some people don’t want any measures taken to keep them alive if they are in a vegetative state, for instance, while others want to be kept alive as long as there is evidence of brain activity. Using a standard form negates your ability to make your wishes known.

If the Power of Attorney, Health Care Power of Attorney or Living Will documents are not prepared properly, declared invalid or are missing, the family will need to go to court to obtain a guardianship, which is the legal right to make decisions on your behalf. Guardianships are expensive and intrusive. If your incapacity is temporary, you’ll need to undo the guardianship when you are recovered. Otherwise, you have no legal rights to conduct your own life.

DIYers are also fond of setting up property and accounts so they are Payable on Death (POD) or Transfer on Death (TOD) accounts. This only works if the beneficiaries outlive the original owner. If the beneficiary dies first, then the asset goes to the beneficiary’s children. Many financial institutions won’t actually allow certain accounts to be set up this way.

The other DIY disaster zone: real estate. Putting children on the title as owners with rights of survivorship sounds like a reasonable solution. However, if the children predecease the original owner, their children will be rightful owners. If one grandchild doesn’t want to sell the property and another grandchild does, things can turn ugly and expensive. If heirs of any generation have creditors, liens may be placed on the property and no sale can happen until the liens are satisfied.

With all of these sleight of hand attempts at DIY estate planning comes the end all of all problems: taxes.

When children are added to a title, it is considered a gift and the children’s ownership interest is taxed as if they bought into the property for what the parent spent. When the parent dies and the estate is settled, the children have to pay income taxes on the difference between their basis and what the property sells for. It is better if the children inherit the property, as they’d get a step-up in basis and avoid the income tax problem.

Finally, there’s the business of putting all the assets into one child’s name, with the handshake agreement they’ll do the right thing when the time comes. There’s no legal recourse if the child decides not to share according to the parent’s verbal agreement.

A far easier, less complicated answer is to make an appointment with an estate planning attorney, have the correct documents created properly and walk away when your brother-in-law starts talking.

Reference: Coastal Breeze News (Aug. 4, 2022) “Dangers of Do-It-Yourself Estate Planning”

Does Estate Administration Need to Be Supervised?

Does Estate Administration Need to Be Supervised?

Probate is the legal process where the court approves the will and the executor so the estate may be distributed after a person dies. Probate is a familiar term to many, but supervised or unsupervised administration is less well known. The article “Estate Planning: Supervised and unsupervised probate administrations” from nwi.com explains how estate administration works.

Generally speaking, there are two different types of probate administration, as inferred by the article’s title: supervised and unsupervised. Depending on who you ask, there may also be a third, known as “informal probate.”

Not all assets are passed through probate. Bank accounts owned jointly pass directly to the other owner. A home owned with a Transfer on Death (TOD) deed is also considered a non-probate asset. This is not to say that non-probate assets cannot be brought into probate. There are instances where they can. However, it takes a bit of an effort and is pretty unlikely to occur.

Probate assets are assets with no surviving joint owner and no beneficiary designation. These types of assets require a proceeding to ensure that the correct person or entity receives it after the original owner dies.

A supervised probate administration requires extensive court involvement. Every action taken by the executor has to be approved. If the home is to be sold or a distribution made to beneficiaries, the executor has to obtain a court order authorizing it.

An unsupervised probate administration, just as it sounds, involves far less court involvement. The personal representative or executor is recognized as valid, creates an inventory of the assets and files the inventory with the court. Once the inventory is reviewed, the executor is told to administer the distribution of assets according to the terms of the will.

Beneficiaries have 90 days to object to the executor’s actions; although this may vary by state. Check with your estate planning attorney. If no one objects, the final account is approved and the executor is done.

With less court involvement, asset distribution proceeds at a faster rate, which is why many wills provide for it.

The “informal probate” mentioned earlier is an outlier. Its use varies by state and by jurisdiction. There’s no court involvement at all. This is mostly used for very, very small estates. Some argue it’s still probate, even if it’s informal, while others maintain it exists solely to avoid probate.

The nature of probate depends on many factors, including where the decedent lives, the size and complexity of the estate and whether or not there are many family members or others who might challenge the estate’s distribution. In some communities, probate is a quick and painless process. In others, it is long, expensive and stressful. Your estate planning attorney will know what your situation will be and help you and your family plan accordingly.

Reference: nwi.com (April 10, 2022) “Estate Planning: Supervised and unsupervised probate administrations”

What Assets are Not Considered Part of an Estate?

What Assets are Not Considered Part of an Estate?

In many families, more assets pass outside the Last Will than through the Last Will. Think about non-probate assets: life insurance proceeds, investment accounts, jointly titled real estate assets, assuming they were titled as joint tenants with right of survivorship, and the like. These often add up to considerable sums, often more than the probate estate.

This is why a recent article from The Mercury titled “Planning Ahead: Pay attention to your non-probate assets” strongly urges readers to pay close attention to accounts transferred by beneficiary.

Most retirement accounts like IRAs, 401(k)s, 403(b)s and others pass by beneficiary designation and not through the Last Will. Banks and investment accounts designated as Payable on Death (POD) or Transfer on Death (TOD) also do not pass through probate, but to the other person named on the account. Any property owned by a trust does not go through probate, one of the reasons it is placed in the trust.

Why is it important to know whether assets pass through probate or by beneficiary designation? Here’s an example. A man was promised half of this father’s estate. His dad had remarried, and the son didn’t know what estate plans had been made, if any, with the new spouse. When the father passed, the man received a single check for several thousand dollars. He knew his father’s estate was worth considerably more.

What is most likely to have happened is simple. The father probably retitled the house with his new spouse as tenants by the entireties–making it a non-probate asset. He probably retitled bank accounts with his new spouse. And if the father had a new Last Will created, he likely gave 50% to the son and 50% to the new spouse. The father’s car may have been the only asset not jointly owned with his new spouse.

A parent can also accidently disinherit an heir, if all of their non-probate assets are in one child’s name and no provision for the non-probate assets has been made for any other children. An estate planning attorney can work with the parents to find a way to make inheritances equal, if the intention is for all of the children to receive an equal share. One way to accomplish this would be to give the other children a larger share of probated assets.

Any division of inheritance should bear in mind the tax liability of assets. Non-probate does not always mean non-taxed. Depending upon the state of residence for the decedent and the heirs, there may be estate or inheritance tax on the assets.

Placing assets in an irrevocable trust is a commonly used estate planning method to ensure inheritances are received by the intended parties. The trust allows you to give very specific instructions about who gets what. Assets in the trust are outside of the probate estate, since the trust is not owned by the grantor.

Your estate planning attorney will be able to review probate and non-probate assets to determine the best way to achieve your wishes for your distribution of assets.

Reference: The Mercury (April 12, 2022) “Planning Ahead: Pay attention to your non-probate assets”

What Needs to Be Reviewed in Estate Plan?

What Needs to Be Reviewed in Estate Plan?

When it comes to drafting a will and other estate planning documents, note that you probably should revisit them many times before they actually are needed, advises, CNBC’s recent article entitled “Be sure to keep your will or estate plan updated. Here are 3 key reasons why.”

You should give these end-of-life legal papers a review at least every few years, unless there are reasons to do it more often. Things like marriage, divorce, birth or adoption of a child should necessitate a review. Coming into a lot of money (i.e., inheritance, lottery win, etc.) or moving to another state where estate laws differ from the one where your will was drawn up, mean that you should review your plan with an experienced estate planning attorney.

About 46% of U.S. adults have a will, according to a 2021 Gallup poll. If you are among those who have a will or full-blown estate plan, here are some things to review and why.

Even though your will is all about you, there are other people you need to rely on to carry out your wishes. This makes it important to review who you have named to be executor. He or she must liquidate accounts, ensure your assets go to the proper beneficiaries, pay any debts not discharged (i.e., taxes owed), and sell your home. You should also be sure that the guardian you have named to care for your children is still the person you would want in that position.

As part of estate planning, you may create other documents related to end-of-life issues, such as powers of attorney. The person who is given this responsibility for decisions related to your health care is frequently different from whom you would name to handle your financial affairs. You should look at both of those choices.

Even if you have experienced no major life events, those you previously chose to handle certain duties may no longer be your best option.

Remember that some assets pass outside of the will, including retirement accounts like a 401(k) plan, IRAs and life insurance policies. This means the person named as a beneficiary on those accounts will generally receive the money no matter what your will states. Bank accounts can have beneficiaries listed on a pay-on-death form, which your bank can supply.

If a beneficiary is not listed on those non-will items or the named person has already passed away (and there is no contingent beneficiary listed), the assets automatically go into probate.

Reference: CNBC (Jan. 27, 2022) “Be sure to keep your will or estate plan updated. Here are 3 key reasons why”

Can I Avoid Probate?

Can I Avoid Probate?

If you have life insurance, lifetime survivor benefits, a home or other investments, who gets them and when depends on what you have done or should do: have an estate plan. This is how you legally protect your family and friends to be sure that they receive what you want after you die, says the article “How (and why) to avoid probate: A slap at your family!” from Federal News Network.

A common goal is to simplify your estate plan to make administering it as easy as possible for your loved ones. This usually involves structuring an estate plan to avoid probate, which can be time-consuming and, depending on where you live, add a considerable cost to settle your estate.

There are a number of ways to accomplish this through an estate plan, including jointly owned property, beneficiary designations and the use of trusts.

Many individuals hold property in joint names, also known as “tenant by the entirety” with a spouse. When one spouse dies, the other becomes the owner without probate. It should be noted that this supersedes the terms of a will or a trust.

Another type of joint ownership is “tenancy in common,” However, property held as tenants in common does not avoid probate. The distribution of property titled this way is governed by the will. If there is no will, the state’s estate laws will govern who receives the property on death of one of the owners.

Beware: property owned jointly is subject to any litigation or creditor issues of a joint owner. It can be risky.

Beneficiary designations are a seamless way to transfer property. This can take the form of a POD (payable on death) or TOD (transfer on death) account. Pensions, insurance policies and certain types of retirement accounts provide owners with the opportunity to name a beneficiary. Upon the death of the owner, the assets pass directly to the beneficiary. The asset is not subject to probate and the designations supersede the terms of a will or trust.

Review beneficiary designations every time you review your estate plan. If you opened a 401(k) account at your first job and have not reviewed the beneficiary designation in many years, you may be unwittingly giving someone you have not seen for years a nice surprise upon your passing.

If you own assets other than joint property or assets without beneficiary designation, an estate planning attorney can structure your estate plan to include trusts. A trust is a legal entity owning any property transferred into it. A trust can avoid probate and provide a great deal of control by the grantor as to what they want to happen to the property.

Reference: Federal News Network (March 30, 2022) “How (and why) to avoid probate: A slap at your family!”

How Do I Avoid Probate?

How Do I Avoid Probate?

Probate can tie up the estate for months and be an added expense. Some states have a streamlined process for less valuable estates, but probate still has delays, extra expense and work for the estate administrator. A probated estate is also a public record anyone can review.

Forbes’ recent article entitled “7 Ways To Avoid Probate Without A Living Trust” says that avoiding probate often is a big estate planning goal. You can structure the estate so that all or most of it passes to your loved ones without this process.

A living trust is the most well-known way to avoid probate. However, retirement accounts, such as IRAs and 401(k)s, avoid probate. The beneficiary designation on file with the account administrator or trustee determines who inherits them. Likewise, life insurance benefits and annuities are distributed to the beneficiaries named in the contract.

Joint accounts and joint title are ways to avoid probate. Married couples can own real estate or financial accounts through joint tenancy with right of survivorship. The surviving spouse automatically takes full title after the other spouse passes away. Non-spouses also can establish joint title, like when a senior creates a joint account with an adult child at a financial institution. The child will automatically inherit the account when the parent passes away without probate. If the parent cannot manage his or her affairs at some point, the child can manage the finances without the need for a power of attorney.

Note that all joint owners have equal rights to the property. A joint owner can take withdrawals without the consent of the other. Once joint title is established you cannot sell, give or dispose of the property without the consent of the other joint owner.

A transfer on death provision (TOD) is another vehicle to avoid probate. You might come across the traditional term Totten trust, which is another name for a TOD or POD account (but there is no trust involved). After the original owner passes away, the TOD account is transferred to the beneficiary or changed to his or her name, once the financial institution gets the death certificate.

You can name multiple beneficiaries and specify the percentage of the account each will inherit. However, beneficiaries under a TOD have no rights in or access to the account while the owner is alive.

Reference: Forbes (March 28, 2022) “7 Ways To Avoid Probate Without A Living Trust”

What a Will Can and Cannot Do

What a Will Can and Cannot Do

Having a will doesn’t avoid probate, the court-directed process of validating a will and confirming the executor. To avoid probate, an estate planning attorney can create trusts and other ways for assets to be transferred directly to heirs before or upon death. Estate planning is guided by the laws of each state, according to the article “Before writing your own will know what wills can, can’t and shouldn’t try to do” from Arkansas Online.

In some states, probate is not expensive or lengthy, while in others it is costly and time-consuming. However, one thing is consistent: when a will is probated, it becomes part of the public record and anyone who wishes to read it, like creditors, ex-spouses, or estranged children, may do so.

One way to bypass probate is to create a revocable living trust and then transfer ownership of real estate, financial accounts, and other assets into the trust. You can be the trustee, but upon your death, your successor trustee takes charge and distributes assets according to the directions in the trust.

Another way people avoid probate is to have assets retitled to be owned jointly. However, anything owned jointly is vulnerable, depending upon the good faith of the other owner. And if the other owner has trouble with creditors or is ending a marriage, the assets may be lost to debt or divorce.

Accounts with beneficiaries, like life insurance and retirement funds bypass probate. The person named as the beneficiary receives assets directly. Just be sure the designated beneficiaries are updated every few years to be current.

Assets titled “Payable on Death” (POD), or “Transfer on Death” (TOD) designate beneficiaries and bypass probate, but not all financial institutions allow their use.

In some states, you can have a TOD deed for real estate or vehicles. Your estate planning attorney will know what your state allows.

Some people think they can use their wills to enforce behavior, putting conditions on inheritances, but certain conditions are not legally enforceable. If you required a nephew to marry or divorce before receiving an inheritance, it’s not likely to happen. Someone must also oversee the bequest and decide when the inheritance can be distributed.

However, trusts can be used to set conditions on asset distribution. The trust documents are used to establish your wishes for the assets and the trustee is charged with following your directions on when and how much to distribute assets to beneficiaries.

Leaving money to a disabled person who depends on government benefits puts their eligibility for benefits like Supplemental Security Income and Medicaid at risk. An estate planning attorney can create a Special Needs Trust to allow for an inheritance without jeopardizing their services.

Finally, in certain states you can use a will to disinherit a spouse, but it’s not easy. Every state has a way to protect a spouse from being completely disinherited. In community property states, a spouse has a legal right to half of any property acquired during the marriage, regardless of how the property is titled. In other states, a spouse has a legal right to a third to one half of the estate, regardless of what is in the will. An experienced estate planning attorney can help draft the documents, but depending on your state and circumstances, it may not be possible to completely disinherit a spouse.

Reference: Arkansas Online (Dec. 27, 2021) “Before writing your own will know what wills can, can’t and shouldn’t try to do”

Does a TOD Supersede a Trust?

Does a TOD Supersede a Trust?

Many people incorporate a TOD, or “Transfer on Death” into their financial plan, thinking it will be easier for their loved ones than creating a trust. The article “TOD Accounts Versus Revocable Trusts—Which Is Better?” from Kiplinger explains how it really works.

The TOD account allows the account owner to name a beneficiary on an account who receives funds when the account owner dies. The TOD is often used for stocks, brokerage accounts, bonds and other non-retirement accounts. A POD, or “Payable on Death,” account is usually used for bank assets—cash.

The chief goal of a TOD or POD is to avoid probate. The beneficiaries receive assets directly, bypassing probate, keeping the assets out of the estate and transferring them faster than through probate. The beneficiary contacts the financial institution with an original death certificate and proof of identity.  The assets are then distributed to the beneficiary. Banks and financial institutions can be a bit exacting about determining identity, but most people have the needed documents.

There are pitfalls. For one thing, the executor of the estate may be empowered by law to seek contributions from POD and TOD beneficiaries to pay for the expenses of administering an estate, estate and final income taxes and any debts or liabilities of the estate. If the beneficiaries do not contribute voluntarily, the executor (or estate administrator) may file a lawsuit against them, holding them personally responsible, to get their contributions.

If the beneficiary has already spent the money, or they are involved in a lawsuit or divorce, turning over the TOD/POD assets may get complicated. Other personal assets may be attached to make up for a shortfall.

If the beneficiary is receiving means-tested government benefits, as in the case of an individual with special needs, the TOD/POD assets may put their eligibility for those benefits at risk.

These and other complications make using a POD/TOD arrangement riskier than expected.

A trust provides a great deal more protection for the person creating the trust (grantor) and their beneficiaries. If the grantor becomes incapacitated, trustees will be in place to manage assets for the grantor’s benefit. With a TOD/POD, a Power of Attorney would be needed to allow the other person to control of the assets. The same banks reluctant to hand over a POD/TOD are even more strict about Powers of Attorney, even denying POAs, if they feel the forms are out-of-date or don’t have the state’s required language.

Creating a trust with an experienced estate planning attorney allows you to plan for yourself and your beneficiaries. You can plan for incapacity and plan for the assets in your trust to be used as you wish. If you want your adult children to receive a certain amount of money at certain ages or stages of their lives, a trust can be created to do so. You can also leave money for multiple generations, protecting it from probate and taxes, while building a legacy.

Reference: Kiplinger (Dec. 2, 2021) “TOD Accounts Versus Revocable Trusts—Which Is Better?”