Talking about death is uncomfortable and estate planning is one of those topics that no one really likes to discuss. This fall, we were saddened at the passing of three clients and helped their families work through the process of tying up their estates. It reiterated how important these discussions and plans really are. More than half of Americans don’t have wills or any sort of estate plan in place. Estate planning attorneys call this the “do-nothing” approach and the technical term for having no plan when you die is called “intestate”. Basically it means that everything you own, all of your assets that you have accumulated and imagined leaving to your heirs someday, will now be appraised, managed and distributed through the probate court system, not by your family or beneficiaries. As you can imagine, there are tremendous fees and legal costs to this process, requiring probate attorneys for public and lengthy reviews by the court system. In South Carolina, for example, a probate account must remain open for at least 8 months and assets can be frozen while it is sorted out. The process can take well over a year or more to settle the estate.
Aha! So we will just have a Last Will and Testament that spells out all of our wishes, you say. It’s true, a will helps set out the guidelines for how you want your estate to be distributed. However, the will is still administered by the probate court, not your family, and it becomes public upon your death. All of the costs associated with probate will still be there. Probate fees can run as much as 5% of your gross estate value, assessed on the total even before all of your liabilities are paid off! Probate court is not just for estates of the deceased, either. There is a Living Probate, which means your estate can go to probate if you are alive, but become mentally incapacitated. Then the probate court steps in to appoint an agent to control all your personal affairs in a “conservatorship.” This may become more of an issue as people are living longer and we face increased age-related cases of Alzheimer’s or dementia.
You may also have some of your assets titled in Joint Tenancy, short for Joint Tenancy With Rights of Survivorship (JTWROS). The right of survivorship gives ownership to the last remaining owner. Married spouses will often hold property this way so that their asset will automatically transfer to their spouse or joint owner. However, once both of the spouses or both owners have died, the asset, unless it was retitled earlier, will still have to go through probate. And neither a will nor the Joint Tenancy will prevent a Living Probate if one of the owners becomes incapacitated.
One good way to protect your assets and make sure they are managed and distributed the way you wish is to establish a Revocable Living Trust. Used in conjunction with your will, it controls all your assets while you are alive and after your death. Basically, you title all of your assets to your trust, and, with the trust as owner, you (or you and your spouse or others) are your own trustee(s), which means you control your assets just the same as you do now. IRA’s and 401K’s are treated separately and won’t be titled in the trust. You will then designate a successor trustee to take over and manage everything when you die. But when that happens, the assets are not in your name, they are owned by the trust and so there is no need for probate. The successor trustee immediately steps in as your estate manager and can distribute or manage your assets as you have designated. You can also write instructions of how to manage things should you become incapacitated, avoiding the need for a Living Probate. It is a win-win.
Take some time to look at your current estate plan, titling of all assets and all beneficiary designations. Discuss with your financial advisor, perhaps at Detterbeck Wealth Management, and your estate planning attorney the best way to protect and title them. It can take some work to track down lost stock certificates, deeds or account numbers, but it will be worth it in the time, angst and costs saved by avoiding probate. Your loved ones and beneficiaries will be grateful.