Probate

Studies have shown that 70% of family wealth is lost by the end of the second generation and 90% by the end of the third. 

Help your loved ones avoid becoming one of these statistics. You need to educate and update your heirs about your wealth transfer goals and the plan you have put in place to achieve these goals.

Probate can be easily avoided, but most estates are dragged through the process.  Why?  Many people fail to create an estate plan, so probate is required.  And - others plan with just a Will, so probate is required.  As a result, assets end up at the mercy of a probate judge, open to public scrutiny, and delayed passing to beneficiaries.

When it comes to estate planning, many individuals believe that dividing assets equally among adult children is the best choice. However, there are situations in which leaving each child the same amount might not be practical. For this reason, it is important to know the difference between an equal inheritance and an equitable inheritance, in which each child receives a fair share based on his or her circumstances.

If you’ve set up a Revocable Living Trust, congratulations!  You’re definitely on the right track. But…you’re only half way there. Many believe because they took the time to create a Trust, their estate will automatically avoid probate.  Unfortunately, this is a false sense of security.

If you’ve set up a Revocable Living Trust, congratulations!  You’re definitely on the right track. But…you’re only half way there. Many believe because they took the time to create a Trust, their estate will automatically avoid probate.  Unfortunately, this is a false sense of security.

The key to probate avoidance is proper asset ownership, including the full funding of your Revocable Living Trust.

What are Probate Assets?

What assets require probate?

• Accounts and real estate titled in your sole, individual name [without a payable on death (POD) or transfer on death (TOD) designation]
• Accounts and real estate you own as a tenant in common
• Contract assets naming your estate as beneficiary

Probate can be easily avoided, but most estates are dragged through the process.  Why?  Many people fail to create an estate plan, so probate is required.  And - others plan with just a Will, so probate is required.  As a result, assets end up at the mercy of a probate judge, open to public scrutiny, and delayed passing to beneficiaries.

Many individuals are aware that a will is one way to plan for the distribution of their assets after death. However, a comprehensive estate plan also considers other objectives such as planning for long-term care and asset protection. For this reason, it is essential to consider utilizing an irrevocable trust.

Owning property as Joint Tenants with Right of Survivorship is easy, common, and often disastrous.  Sadly, children – both minor and adult – are often disinherited.

While there are several forms of joint ownership, the one most people use (and the one considered in this discussion) is called “Joint Ownership with Right of Survivorship.” When one owner dies, the jointly owned asset automatically, by operation of law, transfers to the surviving owner.  

One common way to avoid probate of real estate after the owner dies is to hold the title to the property in joint names with rights of survivorship with children or other beneficiaries.  This is accomplished by adding the names of the children and certain legal terms to a new deed for the property and then recording it in the applicable public land records. 

Many people believe that they do not need to pay an attorney to help them prepare and record the new deed.  Instead, they think that a deed form can simply be downloaded from the internet or obtained from a book that can then be easily filled out and recorded.  But deeds are in fact legal documents that must comply with state law in order to be valid.  In addition, in most states, property will not pass to the other owners listed in a deed without probate unless certain specific legal terms are used in the deed.

How is a Defective Deed or an Invalid Deed Corrected? 

If the problems with a defective deed or an invalid deed are discovered before the owner dies, then the problems can be addressed by preparing and recording a “corrective deed” in the applicable public land records.  This should only be done with the assistance of an attorney.

Unfortunately, many times the problems with a defective deed or an invalid deed are not discovered until after the owner dies.  If this is the case, then the problems cannot be fixed with a corrective deed since the deceased owner is unable to sign the corrective deed.  Instead, the property will most likely need to be probated in order to fix the problems with the title.  Aside from probate taking time and costing money for legal fees and court expenses, until the problems with the title are sorted out in probate court, heirs will not be able to sell the property.  Or, worse yet, the property may be inherited by someone the owner had intended to disinherit when they prepared and recorded their own deed.

What Should You Do?

If you want to add your children or other beneficiaries to your deed in order to avoid probate, and you think you can save a few bucks by using a form you find on the internet or in a book, think again.  Deeds are legal documents that have very specific requirements and are governed by different laws in each state (in other words, a deed that is valid in California may not necessarily be valid in Florida). 

If you want your home or other real estate to pass to your children or other beneficiaries without probate, then seek the advice of an attorney who is familiar with the probate and real estate laws of the state where your property is located. This will insure that the deed will be valid and your property will in fact avoid probate and pass to your intended heirs.

When a loved one dies, an already difficult experience can be made much more stressful if that loved one held a significant amount of debt. Fortunately, the law addresses how an individual’s debts can be paid after he or she is deceased.

When a person dies, his or her assets are gathered into an estate. Some assets are not included in this process. Assets owned jointly between the deceased and another person pass directly to the other person automatically. If there are liens on the property at that time, they will stay on the property, but no new liens can be placed on the property for debts in the name of the deceased. Similarly, debt jointly in the name of the deceased and another party may continue to be collected from the other party. In community property states, all assets and debts are the joint property of both spouses and pass automatically from one to the other. The community property states are Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 

From the pool of assets in the estate, an executor is required to pay all just debts. This means that, before a beneficiary may receive anything, all debts must be satisfied. Property might be sold to create liquidity in order to accomplish this. If there are more debts than there are assets, the estate must sell of as many assets as possible to pay off the creditors. If there is no money in the estate, the creditor can not collect anything. Rather than force people into this tiresome process, many creditors will agree to discharge a debt upon receipt of a copy of a death certificate or obituary. This is particularly true of small, unsecured debts. Life insurance proceeds were never owned by the decedent and should pass to a beneficiary without consequence to the estate. Proceeds of a retirement account may also be exempt from debts.

If creditors continue harassing the beneficiaries of debtors, they may be violating federal regulations under the FDCPA. They can be held accountable by their actions, either by the FTC, the state attorney general, or a private consumer law attorney.

The loss of a loved one is a difficult time, often made more stressful when one has to handle the affairs of the deceased. This may be a great undertaking or rather minimal work, depending upon the level of estate planning done prior to death.

Tasks that have to be performed after the passing of a loved one will vary based on whether the departed individual had a will or not. In determining whether probate (a court-managed process where the assets of the deceased are managed and distributed) is needed, the assets owned by the individual, and whether these assets were titled, must be considered. It’s important to understand that assets titled jointly with another person are not probate assets and will normally pass to the surviving joint owner. Also, assets such as life insurance and retirement assets that name a beneficiary will pass to the named beneficiaries outside of the court probate process. If the deceased relative had formed a trust and during his life retitled his assets into that trust, those trust assets will also not pass through the probate process.

Each state’s rules may be slightly different so it is important to seek proper legal advice if you are charged with handling the affairs of a deceased family member or friend. Assuming probate is required, there will be a process that you must follow to either file the will and ask to be appointed as the executor (assuming you were named executor in the will) or file for probate of the estate without a will (this is referred to as dying "intestate" which simply means dying without a will). Also, there will be a process to publish notice to creditors and you may be required to send each creditor specific notice of the death. Those creditors will have a certain amount of time to file a claim against the estate assets. If a legitimate creditor files a claim, the claim can be paid out of the estate assets. Depending on your state's laws, there may also be state death taxes (sometimes referred to as "inheritance taxes") that have to be paid and, if the estate is large enough, a federal estate tax return may also have to be filed along with any taxes which may be due.

Only after the estate is fully administered, creditors paid, and tax returns filed and taxes paid, can the estate be fully distributed to the named beneficiaries or heirs. Given the many steps, and complexities of probate, you should seek legal counsel to help you through the process.