Downs Law Firm, P.C.
This article discusses some of the advantages and strategic considerations of sharing estate planning details with the next generation, or “Letting the Cat Out of the Bag”
Probate is what’s left over I draw about ten frying pans a week on a legal pad. This is not due to my great artist ability. We offer fee consultations to our client’s named financial successor after a person dies. That would be the Personal Representative, or executor, of a Last Will and Testament, or the Successor Trustee of a Revocable Living Trust. For trust clients, they are almost always the same person(s). In those consultations, I draw a frying pan. You see, Wills work through a Court process called probate. They are not effective until a Court appoints you as the actual representative, in Maryland by passing an Order and issuing Letters of Administration. Probate is the process of “Proving” the Will, meaning that interests parties are notified, and have a chance to object to the will. It is not necessarily good or bad. It is necessary if a will is to be used to distribute assets. Assets don’t necessarily go through this process: Often nothing does. The process is avoided by either Title or Contract. Title is by the form of ownership: Most husbands and wives own virtually everything this way as tenants by the entireties (T by E). If your spouse dies and the house, bank accounts and vehicles are in both names, then they are not in the frying pan. They get diverted by the title. You can own assets jointly with rights of survivorship (JWROS). At the death of one joint owner, the assets go to the survivor. You can also own property with another person as tenants-in-common, meaning that title of your portion does not convey by title at death. Like everything in life, title transfer can be good and bad. It’s great because it’s free. It’s bad because it can have unintended consequences. I transfer my house to myself and my son as joint owners, to “avoid probate”. My son has a car accident, and suddenly I may lose my home because my son owns part of it. Adding someone to the deed is simple, but not necessarily a good idea. I had a client who had two nieces that she put on her two investment accounts, each with a balance of about $200,000. One niece was named as a joint owner of each account. She later entered a long-term care facility. Her one niece dutifully paid the bill for over a year. The other decided to wait and see. When my client died, the niece who was faithful to her got next to nothing, while the other got her full account. How do you think they are now getting along? Also, it may be that a beneficiary should receive their inheritance in a controlled manner. Special needs beneficiaries need may want their benefits preserved. Someone with a drug problem might be best served with specific controls. A child getting divorced might want to buffer their inheritance. Title transfers are simple but don’t allow for any controls. They say there is more than one
Selecting an Executor (or Trustee)? If you can’t pay your bills due to injury or death, selecting an Executor (or Trustee), often proves to dictate how well the plan will work. Who do you pick as the quarterback? In a Will, Trust, or Power of Attorney, you must select a money managing chain of command. Who are you going to hand the checkbook to? Although the role has different names for different documents, the considerations are the same. They all serve as fiduciary, who you trust to stand in your shoes and act for you when you can’t. In a Power of Attorney, this fiduciary role is called an “Attorney-in-Fact”; for a Last Will and Testament, this is an executor, and for a trust, it’s the trustee. Selecting fiduciaries becomes more accessible when the role is understood. A fiduciary is someone empowered to control different assets for another person, usually the intended beneficiary of the assets. The fiduciary must put the fiduciary’s interests aside and act in the beneficiary’s best interest, even when doing so is contrary to the fiduciary’s interests. Who Can Be a Fiduciary? A fiduciary can be anyone with legal capacity, including family members. Suppose you are not comfortable with a relative controlling your assets as a fiduciary. In that case, you may prefer to have a non-family member or even a financial institution serve in that role. For example, an estate planning attorney is a fiduciary by the nature of her legal and ethical obligation to act in the best interest of her clients. Still, an attorney also may serve as a fiduciary for an estate, a person, or a trust. The fiduciary appointed to administer a trust and manage its assets is a trustee. If the trust is created under your last will and testament to administer the inheritance for your beneficiaries, then such trust is known as a “testamentary” trust. On the other hand, if the trust is created under your revocable trust established during your lifetime, then the inheritance trusts come into play upon your death. Both inheritance trusts are irrevocable; the difference is that the “testamentary” trust requires probate, and the other does not. The fiduciary nominated by you to carry out the probate and administration of your Last Will and Testament is an executor (or personal representative). The executor must first receive permission from the court to carry out the executor’s responsibilities. Their authority to act comes into effect only after the last will has been presented for probate and the court appointments that person to serve. How Do I Select the Best Candidate to Be My Fiduciary? Ordinarily, the person doesn’t need to be a financial expert: pick someone honest and reliable. They can hire experts, but there is no substitute for character. Selecting a fiduciary to take care of your financial and legal decisions at incapacity or death can be more complicated than deciding who you want to inherit your estate. If your family includes multiple marriages or has
Although there is considerable legal information and misinformation, it is generally understood that a last will and testament is the device used to distribute property after death. However, the why, how and when are less familiar.
A common dilemma that families face upon the incapacity or death of a loved one is locating estate planning documents. While preparing the documents are the most important step, that is irrelevant if the documents are lost when they most need to be used.
When you set up your estate plan it is important to coordinate the legal planning documents that you or you and your attorney create with the document provided by your retirement account custodian and/or your life insurance carrier called a ‘Designation of Beneficiary.’
At such an emotional time, more paperwork is probably the last thing you want on your to-do list. However, taking a few key steps is critical to your financial future.
Whatever the reason, whether your life is a bed of roses or a getting-worse-nightmare, there are things you can do now to insure what you leave will go to who you want. And when. And in what portion or portions.
If you’ve had an IRA and a 401(k) for many years, you may occasionally ask yourself some questions: ‘Am I contributing enough?’ ‘Am I still funding these accounts with the right mix of investments for my goals and risk tolerance?
In fact, many couples with no children mistakenly believe that they are less likely to need a last will and testament than couples with children.
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