By Tim Barkley. September 2020.
“If I don’t have a will, the State will get everything when I die!”
“I don’t need a will, because everything is going to my spouse!”
“If I have a will, my estate doesn’t go through probate!”
“I need a living trust, so I can avoid probate! That lady on TV said so!”
The author addresses these and similar misunderstandings on a daily basis. Some are alarmist, some induce heedless complacency; all can lead to bad results.
If you don’t have a will, your assets are not given to the State. Your assets pass to the people that the State assumes – rightly or wrongly – you would want to have them. Sometimes the assumptions are odd. Assets owned by you in your sole name are divided between your children and your spouse – and if you have no children, between your spouse and your parents.
This strange provision seems to be drafted to protect folks in unhappy marriages. Only if you have no children or surviving parents do your assets all pass to your spouse. Nothing passes to the State (except for taxes and fees) unless you have no relatives at all.
The process of probate was created by the State to ensure that your wishes are followed when you die. Everything you own when you die that does not have a beneficiary designation will pass through probate.
Probate is not necessarily a bad thing. It creates delays, and expensive ones at that, but if you own anything when you die, probate is the way your loved ones get your stuff. Sometimes probate can and should be avoided, but it is certainly not an unmitigated evil.
Your will is what tells the probate court what to do with your stuff when you die. So, if you die with assets in your own name that don’t have a beneficiary designation, a will is a very good thing to have – but it doesn’t avoid probate. It controls it.
Probate avoidance is accomplished with living trusts, among other vehicles. Living trusts avoid probate because assets transferred to the trust, controlled by you as trustee of that trust, are technically no longer owned by you. Since only what you own at the date of death passes through the probate process, the assets in the trust are not under the jurisdiction of the probate courts.
The benefits of probate avoidance include eliminating or avoiding the costs and delays inherent in the legal system, and eliminating the publicity of the probate system. Living trusts also provide other benefits, such as improved asset management capability if you become incompetent.
However, living trusts can be expensive and complicated. While they have their place, they are not a panacea, and they certainly are not for everyone.
Other usually less expensive and less complex probate avoidance tools include life estate deeds, with and without the retained power to sell the property; paid on death (POD) and transfer on death (TOD) designations for bank and securities accounts, respectively; and joint ownership, but only in appropriate situations.
If you own real property that is to pass directly to your children or other loved ones, a life estate deed can provide you with use and control of the property during your life, and pass title to the property directly to the recipients without probate or trusts. You can retain the right to sell, mortgage, lease or even give away the property, or not retain those rights. Your decision as to whether to retain these rights has important consequences, and should be discussed with your advisor.
POD and TOD accounts are beneficiary designations for bank and securities (stock and mutual fund) accounts. In either case, the account becomes the property of the beneficiary upon your death, with no probate or other proceedings, but you retain use and control of the account until your death.
Joint ownership should be considered a potentially dangerous tool, since you can find your assets subject to the claims of the joint owner’s creditors. The law of joint ownership treats real property, securities and bank accounts differently. Be sure to discuss with your advisor.
Also, you need to be clear (in writing) with the joint owner and others as to your intentions. Some folks title a bank account jointly as a “convenience” to allow someone else access to funds for their own convenience. For example, a parent might make a child a joint owner of a checking account so the child can write checks to pay the parent’s bills, including the funeral bill. The joint account titling, then, is a substitute for a power of attorney.
The parent needs to be clear as to whether the money in the account is intended to be the property of the child, either upon adding the child to the account or at the parent’s death. This is important, because without clarification, the money belongs to the child when the child is added to the account as a joint owner. That makes the money in the account subject to the claims of the joint owner’s creditors, and means that the entire account belongs to the joint owner when the parent dies.
This can lead to contentions and even lawsuits between surviving children, with the joint owner arguing that the money belongs to him or her, and the other children arguing that the account was titled jointly merely for the convenience of the parent. A written memo or note to all children can eliminate this issue.
Double-check your own assumptions, and make sure your plans are founded on fact, not myth-understandings or hasty generalizations. Meet with your planner to be sure that your plan accomplishes your goals.
Attorney Tim Barkley
The Tim Barkley Law Offices
One Park Avenue
P.O. Box 1136
Wills & Trusts | Estate Planning | Probates & Estates
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