7 Heresies of Effective Estate Planning - First Heresy
Is Counseling Clients to Pursue Remedies of Greater Legal Profits at Greater Client Expenses Acceptable When Equally Effective Remedies of Lesser Legal Profit at Lesser Client Expense are Simultaneously Available?
First Heresy: Estate Planning with a Will and Probate Incurs More Attorney Fees Than With a Living TrustEXPLANATION OF WILLS REQUIRING PROBATE All Wills Must be Filed: I.C. ?29-1-7-24 is an Indiana statute directly stating that wills must be probated to effect title or the right to possession of the assets of a decedent. It states: ..."no will is effective for the purpose of proving title to, or the right to the possession of, any real or personal property disposed of by the will, until it has been admitted to probate." I.C. ?29-1-7-24: "Except as provided in IC 1971, 29-1-8-1, 2, and 3, and IC 1971, 29-1-13-2, no will is effective for the purpose of proving title to, or the right to the possession of, any real or personal property disposed of by the will, until it has been admitted to probate." [emphasis added] Purpose of Probate Filing: The practical reasons for a public filing of the last will and testament is that its tetins of testamentary intent of the estate holder cannot be enforced by any other means. The estate holder may have left assets behind that are titled in only the estate holder's name, and thus represent ownership by that estate holder's estate, which ceased its existence when the estate holder died. At that moment of death, that asset became the property of some other estate, either by 1) laws of multiple owners, such as joint tenancy or tenancy by the entirety; or 2) laws of contract succession, such as with deposits with financial institutions; or 3) the Indians laws of probate administration, which are the laws dictating succession of asset ownership in default of the other methods not being effective for what reason those methods were rendered ineffective. With options 1 and 2, the new owner is named on the title of that asset; but with option 3 -the default option of probate administration through the probate court system of Indiana or any other state in the Union, someone of relevant interest must petition that probate court system to seek court administration to re-title that asset, but only after judicial review and audit to assure that the creditors of the estate holder were paid the honest debt promised them by the estate holder prior to death. Thus any accusation that "All wills have to go to probate is false and mis-representative" is itself a misrepresentation of these Indiana statutes. All wills, in order to effectuate the purpose for which they were intended, must touch the probate process to one degree or another; and to claim otherwise, when, as a practitioner, one is obligated to know otherwise, is intentional mis-representation [a.k.a. fraud].
Different Levels of Probate AdministrationThere are 4 different levels of probate in most estates: 1. Estate with No Assets to Administer;2. Small Estate with Dispensed Administration; 3. Unsupervised Estate Administration; 4. Supervised Administration. Estate with No Assets to Administer; An estate that has a last will and testament, but no known assets needing probate administration to re-title those assets, must to file that last will and testament or have it "spread of record" in the local county court of jurisdiction in order to comply with I.C. ?29-1-7-24. This is most common in estates where the estate holder elected to use living trust as the main testamentary document to the distribution of that estate holder's testamentary wishes; but "Spreading the Will of Record" without any other assets owned outside the living trust estate is in no way comparable to the probate process of requiring actual court administration of the asset titles themselves. Trust Alternative. The fourth alternative to post mortem asset succession is a living trust, an option which is established by the estate holder as trust maker during that estate holder's life time and then the entire estate of that estate holder is re-titled to that living trust, either during the estate holder's lifetime with most all of the assets, or by those contracting laws, as they affect retirement plans at the estate holder's death. So there are no assets in the estate holder's estate at death if that estate holder diligently re-titled all of her or his assets after signing a living trust agreement. Confidential Document. Living trusts are generally be considered confidential documents by the common law such that to even bring suit over the terms of that trust requires first obtaining the court's permission to docket that document as part of the court's public record by proving to the court that the terms of the trust agreement are relevant to the adjudication of the plaintiffs grievance for which that plaintiff sought relief from the court. Not only is the trust agreement considered confidential but so is its inventory of assets and its inventory of liabilities. So the debts of the creditors are not the concern of published disclosure within the probate court system, which, by U.S. Constitutional requirement, must be forums of open, public information, but does except the confidential information regarding the terms, conditions, assets and liabilities of a living trust. Trustee Administration Exempted from Probate Court Oversight. A specific Indiana statute mandates that trust be administered without court involvement. fI.C. ?30-4-3-3(a) states the following: "Sec. 3. (a) Except as provided in the terms of the trust and subject to subsection (c), a trustee has the power to perform without court authorization, except as provided in sections 4(b) and 5(a) of this chapter, every act necessary or appropriate for the purposes of the trust including, by way of illustration and not of limitation, the following powers:" [IC ?30-4-3-3, emphasis added]. The statute goes on to state an all-inclusive, most comprehensive list of powers which the trustee may exercise without court authorization. The statute is contained in the Table of Statutes attached hereto and that list includes the 27 different numbered trust powers that is very thorough such thatit attempts to be totally comprehensive [See, IC ??30-4-3-3(a)(1) thru (27)]. Thus the assets of the living trust estate do not have to undergo probate court administration for execution the trust provisions for distribution of the trust estate at the estate holder's death. Instead, the trustee is permitted by the above-cited statute to privately administer the trust estate without public exposure of the probate court administrative process, which is also defined by the Indiana statutes, IC 29-1-7 Chapter 7. Probate and Grant of Administration, and IC 29-1-7.5 Chapter 7.5. Unsupervised Administration, and IC 29-1-8, Chapter 8. Dispensing with Administration. These statutes will discussed in further detail herein below; but these statutes are irrelevant to the distribution of trust assets from a well-defined and properly funded trust agreement following the trust maker's death."Properly funded trust agreement" is a reference to the most common reason why trusts fail to avoid any probate court administration. ALL of the client assets should be re-titled to the client's living trust. Personal tangible property is transferred by an absolute assignment and bill-of-sale [see, UCC regarding ownership of tangible property]; Real estate has to be quitclaim deeded; closely-held businesses needed ownership shares re-issued; accounts in financial institutions need to be re-titled; and life insurance policies need to have change of ownership and beneficiary. Asset Protection. Revocable trusts do not provide, as an inherent characteristic, the ability to avoid trust maker liability, i.e, asset protection, so whether the client's automobile is in the trust or out of the trust will not prevent creditors from levying on trust assets in the event of an unsatisfied judgement for personal injury; but such a title transfer to "John Doe's Living Trust" will avoid the need of probating the vehicle to change that title. The trust maker's retirement plans cannot have the ownership changed without incurring a lump sum income tax in the year of the change; but they so need to be reviewed and, perhaps, changed in the beneficiary designation to assure application of "stretch IRA" distribution after death; but, as a contractual relationship with a financial institution holding deposits of the trust maker, the retirement plans will transfer directly to the designated beneficiary again without any need to pursue probate court administration. If all of these assets have been properly checked in the estate planning process for proper re-titling by the clients, these will be NO assets left at the death of the estate holder which need probate administration. Pour-Over Will. One remaining document in the estate planning package assembled by most estate planning attorneys who use living trusts in lieu of a last will and testament is a "pour-over will". Spreading the Will of Record. The discussion herein above concluded that I.C. ?29- 1 -7-24 requires that all wills be filed with the local probate court to be enforceable; and Indiana has developed that the process of "Spreading the Will of Record". Petition to Spread the Will of Record is a probate process on which a petition is drafted stating that: 1) the decedent died, as documented by the attached death certificate; 2) the decedent left behind the attached last will and testament which leaves any and all remaining assets of the estate to the decedent's living trust with the nominated successor trustee as successor trustee, and 3) that there are no assets remaining in the estate to be probated, and 4) the name and address of the designated personal representative, and 5) the trustee is directed by the deceased trust maker to pay any and all outstanding debts of the estate from the trust estate as part of the private trust business, and 6) that the estate be closed immediately upon the court subscribing the accompanying Order appointing the personal representative because there are no known assets in the estate to which a closing statement could refer, and 7) if any unknown assets are discovered, the duly appointed personal representative will provide court with a closing statement providing notice that said asset was re-titled to the trust estate. Thus if the estate planning was properly completed with respect to the transfer of assets to the living trust, the process of spreading the pour-over will of record will be part of the process know as "probate"; but spreading the will is less involved than the probate process for the estate with dispensed administration; and that process is substantially less that the process of supervised administration or unsupervised administration as discussed herein below. But a review of these other probate administration options will clearly demonstrate that much more attorney time is involved than with the use of a living trust and a pour-over will, even in Indiana.
For Additional Information Please ContactMichael Foster