What is probate?
Probate is the legal process overseen by a court to ensure your debts are paid and your assets are distributed to beneficiaries as specified in your will. If you do not have a will, the court still oversees the distribution of your assets in accordance with a state law called the intestacy statute.
What is the problem with probate?
It is expensive and time consuming. And if you own property in more than one state, your family might be forced to file a separate probate in each state. A probate can take from nine months to two years. During at least part of this time the assets are not available to beneficiaries who might need them to live on. They are at the mercy of the court and will have to file a request for living costs during the process. All expenditures are listed in probate "accounts." if the estate is complex, drafting the accounts will be costly.
Your family has no privacy and no control over the probate process.
Probate is public. All "interested parties" must be notified of the probate process, and can see what assets and debts you had. There are attorneys out there who search the probate records, find long lost heirs, and represent them for a percentage of their share in an estate. I once worked on a case where thirteen heirs from a foreign country made claims against the estate, because an attorney who represented them spent time reviewing everything filed in the probate courts. That was how he earned his living. The decedent didn't know any of these people personally, and each one received a $100,000 windfall from the estate.
Doesn't joint ownership help with avoiding probate?
Many people come to me having placed the names of loved ones on all of their accounts as joint owners. Although banks sometimes like to tell you a different story, this type of "planning" is really no plan at all.
It won’t work with single people who have no one to share their account; it sometimes disqualifies people from MassHealth (Medicaid) benefits when they apply for the benefits, if a co-owner has taken funds from the account for his or her benefit; it won’t work with people whose children suffer from a disability and are on SSI; and it does not save taxes for people with taxable estates.
Furthermore, if both owners die at the same time, the jointly-held asset must be probated anyway. Or if one owner dies and the surviving owner neglects to place a new a co-owner on the account, there will have to be a probate. Adding a co-owner means loss of control. If that person is subject to creditors and predators, you may find your asset depleted through a lawsuit against them. Sometimes assets like real estate are co-owned, and each owner must sign off on a refinance or sale. If your co-owner is incapacitated, then you have to go to the probate court to gain the right to sign for that person.
What happens if you are incapacitated and cannot manage your own affairs?
You may still be subject to the probate courts even if you have a will. First, a will only goes into effect after you die. Incapacity can take many forms: a stroke, dementia, or a heart attack. In these instances, the court will get involved, and when it does, it will "be with you" for the remainder of your life. In a public process, the court, and not your family, determines and oversees how your assets are spent and your care managed. Again, the process is time consuming and upsetting to families in vulnerable situations. Also, if you recover, it will be difficult, expensive and time consuming to terminate court oversight of your life.
What is the best method of avoiding probate court?
The answer to avoiding the probate process is appropriate planning and proper documents. Each case is different, but every client should start with a durable power of attorney and a health care proxy to avoid the need for guardianship and conservatorship. And everyone should consider a living trust.
What is a living trust?
It is a legal document that contains your directions to deal with your assets when you die. It is similar to a will, but the living trust does not require a probate to control all of your assets and avoids court control over the assets if you become incapacitated.
How does a living trust work, how do I avoid probate with this trust, and do I lose control over the assets that go into it?
First, you transfer your assets from your name to the trust over which you maintain control during your lifetime. For example: From Joe and Henrietta, husband and wife, to the "Joe and Henrietta Trust," Joe and Henrietta, trustees. The trust is then dated. Technically, the trust owns everything you transfer into it, but YOU maintain control and can do anything you want to do with those assets during your lifetime. Although the trust owns the assets from a legal point of view, from the practical point of view, you maintain control and can do whatever you want with what is in the trust during your lifetime. The probate court has no business with the trust. If you become incapacitated, the trust, and not the court, will control your assets. You appoint a successor trustee of your choice if you can no longer be trustee.
Why won’t a durable power of attorney prevent court involvement in my affairs?
A durable power of attorney works to allow you to name someone to manage your financial affairs should you become unable to do so. It is only useful to you when you are alive. A durable power of attorney becomes ineffective upon your death. Sometimes financial institutions will not honor your durable power of attorney; and sometimes the person appointed to manage your affairs may abuse the privilege. Thus, alone, a durable power of attorney carries some risk. It can be very effective when used as part of a plan that includes a living trust.
Do I still need a will if I have a living trust?
Yes. If you forget to transfer an asset to your trust during your lifetime and you die, a properly drafted will called a "pour-over will" can do this for you. The asset may still have to go through probate first, but it will go into the trust, which is your instruction on how distribution is to be made.
Who needs a living trust?
You might be surprised to learn that wealth, age and marital status don’t matter. If you're planning on avoiding probate, consider a living trust.
A final word: I have had clients refuse to create a living trust because they didn't want to spend the money. But, at the end of the day, the costs, expense, and time spent on probate was far in excess (by five times in some instances) of what it would have cost if they had created a trust through which their assets could have been passed to their loved ones. So a word to the wise: don’t be "penny wise and pound foolish". Consider the benefits of a living trust.