Taking Probate Seriously
Good Morning Relaxing Retirement Subscriber,
If you’ve ever had the unfortunate job of settling an estate for a family member or friend who didn’t have a proper plan in place, then you know just how awful the probate process can be.
Unnecessary delays… never ending trips back and forth to the attorney’s office and the courts…. and, of course, fees.
Whenever this subject comes up with a new Relaxing Retirement member, it always lights a fire.
I’ve yet to meet anyone who doesn’t want to make sure that all their assets pass on to their heirs as smoothly as possible, with less delay from probate, and with as little estate taxes as possible paid to the federal and state government.
The good news is that the solution is rather simple. As you’ve heard me drive home before, you really need a carefully thought out estate plan with a revocable living trust as the main component.
WARNING #1: Your estate planning attorney may suggest that you don’t need a living trust because your estate will owe no estate taxes upon your death based on current laws.
And, in many cases today that is true because estate tax exclusions have rapidly increased in the past few years to $5.49 million per individual on the federal level or just shy of $11 million for couples.
In Massachusetts, the exemption is still only $1 million per person.
However, the real problem that everyone wants to avoid is probate.
Probate is the process of validating your will in a court of law at your death. The average length of time to probate and settle an estate in Massachusetts is in excess of 12 months! Neighboring states have similar problems.
Probate is a very lengthy process which, in addition to the time involved, can rack up sizable attorney bills.
Here’s the good news! If you have a “properly funded” living trust, probate can be avoided completely, thus drastically diminishing the need and cost for most of the work done by an attorney at your death.
Not necessarily good news for the attorney, but very good news for you and your family.
What About a Will?
Won’t a will solve this problem?
Unfortunately, it won’t.
What a properly structured living trust does, that a will won’t do, is direct your assets:
- To whom you want
- When you want (you can delay benefits passing to one beneficiary while paying them out immediately to another)
- The way you want (you may stagger the delivery of the assets to one beneficiary while giving them in a lump sum to another)
Most importantly, you can accomplish this without the cost and delay of living probate or death probate.
Living probate occurs if and when you are incapacitated, but still living, i.e. a coma. A living trust becomes operational the day you sign it and can have provisions for you while you’re alive as well.
A will does not do that.
Death probate occurs after you die and it is the process of validating the wishes spelled out in your will in a court of law. Once it clears the long delays of probate, the assets can then be distributed and “re-titled” in your beneficiaries’ names.
With a properly funded living trust, probate can be avoided completely, and the assets pass directly to your beneficiaries saving thousands of dollars in costs and months of headaches for your children and other beneficiaries.
WARNING #2: “Creating” a Living Trust Does NOT Avoid Probate
That’s right. You have to take step two.
And, that is “funding” your trust while you’re still living!
That sounds like a big word, doesn’t it?
Funding simply means re-titling your assets to your trust.
If you stop and think about it, transferring your assets, either during your lifetime or at death, is simply the process of changing the title of ownership to someone else.
If you do this through your will, it will require the cost and delays of probate.
So, what do you do to fix this problem?
The first step is to determine which assets will go into whose trust (i.e. your trust and/or your spouse’s trust). If your estate planning attorney is doing his/her job, they will spell this all out for you.
The next step is to change the title of ownership on each of your non-IRA assets, a bank account for example, to your trust so that your statement now reads “John Jones, Trustee, for the John Jones Revocable Trust” instead of just “John Jones”.
Make sure you do this with all of your non-IRA assets so nothing gets left out.
Your estate planning attorney should also spell out how your beneficiary designations should read on your life insurance, IRAs, and annuities.
** The key point here is, if you are going to name your respective trust as your beneficiary, your trust MUST qualify for “pass-through” status so your trust beneficiaries have the opportunity to save thousands of dollars in income taxes by taking advantage of Inherited IRA rules.
While you’re completing the paperwork to re-title your assets to your respective trusts, take care of all your beneficiary designations at the same time. (This is something we do for all of our Relaxing Retirement members as the paperwork can become confusing.)
Committed to Your Relaxing Retirement,
The Retirement Coach
P.S.: WHO do you know who could benefit from receiving my Retirement Coach “Strategy of the Week”? Please simply provide their name and email address to us at info@TheRetirementCoach.com. Or they can subscribe at www.TheRetirementCoach.com.
I appreciate the trust you place in me. Thank you! (The content of this letter does not constitute a tax opinion. Always consult with a competent tax professional service provider for advice on tax matters specific to your situation.)