Attorney & Mediator
Attorney & Mediator

Minimizing Probate without a Trust

Some clients prefer not to put a revocable trust in place – they may have minimal assets, they find it too complex, they might find it too costly.  But, if the primary estate planning document is a Will – the estate will go through probate court. 

Is there a way to minimize this issue?  Yes, although there are some limitations.

Real Estate.  Your home if owned in one name alone at the time of death would need to go to Probate Court.  The alternative is to transfer ownership of the real property into joint ownership (with the right of survivorship).  In this way, upon the death of one co-owner, the property will transfer to the survivors by operation of law. 

Is there a downside?  If you transfer the property from Mom to Mom and children, joint tenants with the right of survivorship, the children have an ownership interest in the property.  This means that their approval and signatures would be needed to sell the property.  Additionally, if they have creditors, the property could become subject to their legal obligations.

The alternative?  A “Lady Bird Deed”.  In this type of deed, the property is transferred  from Mom to Mom and children, joint tenants with the right of survivorship, however, Mom retains a life estate with the right to transfer the property and keep the proceeds.  The allows for the transfer by operation of law from Mom to her children upon her death without the need for Probate.  It also gives Mom the control of her property until she dies.

Financial Assets.  Many banks and financial institutions will allow for a Transfer on Death (TOD).  This is similar to beneficiary designations.  In this way, the assets are transferred upon death to the named beneficiaries without the need for Probate. 

Are there drawbacks?  This may not present the flexibility that a Will or a Trust can provide for contingencies.  In a Will or a Trust, the grantor can provide for distribution to individuals, but also provide for alternative beneficiaries in the event that the primary beneficiary fails to survive the grantor.  This may not be possible with Transfer on Death provisions. 

Will Still Needed.  If an individual executes a Lady Bird Deed and puts Transfer on Death provisions for his or her assets, a Will is still a good idea.  There are assets that can be missed, there can be unanticipated income to the individual after his or her death that will be in his or her name alone.  Where is that income to go? 

The Will becomes a safety net to assure that all of the assets are directed to the correct individuals.

Is a Lady Bird Deed and Transfer on Death provisions on your assets enough for your estate planning needs?  It is important to discuss these issues with a professional to evaluate what is best for you and your estate.  One size doesn’t fit all. 

When you Need a Trust – Second Marriage

Revocable Trusts provide a host of benefits to the beneficiaries of a deceased loved one.  Probate is avoided and administration is less cumbersome.  These are nice benefits of a revocable trust; however, some clients feel that these benefits do not outweigh the cost of setting up an estate plan with a revocable trust.

A circumstance that make a revocable trust really needed is when the individuals have been previously married.

In a first marriage situation, a couple will ordinarily provide first for one another.  It is only when the survivor passes that subsequent distributions are made to beneficiaries.  In a subsequent marriage, the parties may want to make some provision for one another, however, they want to control the ultimate distribution of their portion of the estate so that it flows to their children or siblings.

If the couple only has Wills, there is no ability to put strings or conditions on money left to the spouse.  Whatever he or she receives through the probate process will be absolutely available to the survivor to do with as he or she pleases.  In other words, if the estate is left to the survivor, there is no guarantee that he or she will leave any of the remaining estate to the children or family of the first to die.

A revocable trust enables the grantor to put strings on money given to the spouse.  The money remains in trust and is available for the use of the survivor; however, the money left at his or her death will flow to the children of the first to die.

When you Need a Trust – Real Property in Multiple States

Revocable Trusts provide a host of benefits to the beneficiaries of a deceased loved one.  Probate is avoided and administration is less cumbersome.  These are nice benefits of a revocable trust; however, some clients feel that these benefits do not outweigh the cost of setting up an estate plan with a revocable trust.

One circumstance that make a revocable trust really needed is having real property in more than one state.

If you have real property in one state, it will be included in your Probate estate.  When your Personal Representative is granted authority to act on behalf of the estate, he or she will be able to transfer or sell the property in accordance with your wishes.

If you have real property in more than one state, the process becomes far more difficult and more costly.  A probate court order from one state is not effective in another.  Therefore, your Personal Representative in Michigan, will not have the legal authority in Arizona or Florida to sell or transfer your property.  It will be necessary to open a probate proceeding in every state in which you own real property.

A revocable trust, into which all of the real property has been transferred will enable your successor trustee to transfer or sell all of your properties in accordance with your wishes without the need to go to court.

The Problem of the Unfunded Trust

Carol and Jim had been married for 25 years – their children were grown. Jim took the steps to have an estate plan made – he had trusts made for himself and his wife with pour-over wills. Carol went in to sign the documents though she really didn’t pay any attention to what they were for – she trusted her husband to do the right thing.

Jim was only 52 when he unexpectedly died from a massive coronary. Carol came to me to see if she needed to do anything – after all, Jim had set up these trusts that should take care of everything.

What he had failed to do was to fund the trusts. Their real property had not been transferred into the trust. None of their bank accounts, brokerage accounts, or other assets had been transferred.

Since a number of assets were in Jim’s name alone, it was necessary to commence a Probate proceeding in order to get the assets into his trust. This cost Carol not only the filing and attorney fees but the inventory fees as well.

Additionally, real property had to be transferred requiring that deeds be prepared and recorded.

How could this have been avoided? At the time the trusts were prepared, all real property should have been transferred into the trusts. Additionally, all bank accounts, brokerage accounts and other assets should have been transferred as well. This follow up is critical to having a revocable trust work smoothly upon the death or disability of the grantor.