Legal Service

Probate Rules Regarding Real Estate

Since states have jurisdiction of real estate, if you die in one state, but own property in another, your executor will have to conduct a separate probate proceeding in each state where you own property.

Additional Issues Regarding Probate

If There Is No Will

Administration Proceedings

Without a will, the process of transferring property at death is called Administration. The Administration process is very similar to probate except there is no will. A petition is brought to appoint a personal representative. The spouse or adult child of the deceased can petition the Court. However, if none of those petitions, a creditor can also petition. The Court sends a notice to DHHS to give Mainecare an opportunity to assert a lien on the estate if the deceased received Mainecare benefits before they died.

Why Avoid Probate

Probate: An Expensive Public Proceeding

Probate is a public proceeding. There is a filing fee. Also, the dollar value of the estate must be filed with the Court. In Probate it is also very easy for interested individuals to learn of the proceeding and the value of the estate. For those reasons many people choose to avoid probate. However, if probate avoidance is done improperly, it can create new risks to loss of assets, including substantial capital gains taxes. When done properly, a probate avoidance estate plan can eliminate probate and protect the family without increasing taxes.

Avoiding Probate the Risky Way

Avoiding Probate the Wrong Way Could Cost More

There are many articles written that attempt to provide guidance on avoiding probate in an easy and inexpensive way. While some to the advice is useful, much of it is shortsighted. Probate avoidance can be obtained using joint tenancy of real estate, pay on death accounts, beneficiary designations, and outright gifts of property.

Avoiding Probate with Joint Tenancy of Real Estate

Joint Tenancy of Real Estate

Clients often ask, “Should I just put my kids name on the deed?” Putting someone’s name on the deed means gifting them an interest in your property. When you put someone’s name on the deed you are also gifting them your cost basis. They are also “gifting” you their liability to creditors. It is important to remember that joint owners of real estate have an absolute right to force the sale of the property to get their half.

Avoiding Probate with an Outright Gift

Beneficiary Designations and PODs

It is possible to avoid probate of a house or other real estate by simply gifting it during life. In this scenario, mom or dad or both “put the house in the kid’s names”. As with joint ownership above, you have just gifted your cost basis. That means that if the house is worth significantly more today than when you bought it, you kids, when they go to sell the property, will have to pay capital gains income taxes on the difference between what you paid, and what they sold it for. This could result in hundreds of thousands of dollars in unnecessary taxes.

Avoiding Probate and Protecting Your Family

Revocable Living Trusts Avoiding Probate & Getting Protections

A Revocable Living Trust is a legal document that allows you to benefit from your property during your life, and retain control, while at the same time avoid probate at death. Unlike with gifting and beneficiary designations, with a Revocable Living Trust, you can get a stepped-up tax basis for your heirs at death. You can also protect assets from your beneficiaries’ creditors, bankruptcy, law suits and divorce. Assets placed in a Revocable Living Trust pass directly to whomever you name at your death, without any court intervention.

While you are alive and well you can manage the assets, buy, sell or gift the assets the same as when you owned them outside of the trust. However, if you become incapacitated, you can name a successor trustee who can manage the property for you. This prevents Court intervention or the need for a guardianship proceeding. At death the trust property can pass outright to those you name or remain in trust for their benefit giving them trust protections during their life.

Simply Having A Revocable Living Trust Is Not A Plan

It is important to remember that the Revocable Living Trust does not achieve these objectives of probate avoidance, management in disability and protection for the next level of beneficiaries simply by being drafted. The trust must also be maintained. If your trust based probate avoidance plan is not integrated there is a strong chance it will not work. I have reviewed many estate plans where the client has prepared a Revocable Living Trust, and years later, there is no asset titled to the trust.

The Four Pillars of a Successful Estate Plan

How to make an estate plan that will not fail

Asset Alignment, Asset Verification, Updating & Instructions

In a magazine article Forbes reported that 70% of intergenerational wealth transfers fail. Presumably that statistic includes people who had wills, people who had trusts, and people who had no plan. We have learned over the sixty plus years of our law firm’s existence, what you need to make your estate plan succeed. We call these four necessary steps the Four Pillars of Estate Planning.

Asset Alignment

Integrate Your Property With Your Plan

The First Pillar: Asset Alignment. The estate plan is not complete until the assets have been re-titled in the trust name. One of the core components of a successful estate plan is ensuring assets are re-titled. The only way for an asset to avoid probate is to make sure it is owned by the trust, or to designate the trust as the beneficiary. Unfortunately, many people with revocable living trusts believe their estate plan will avoid probate but have failed to align their assets with the trust.

Asset Verification

A Trust Without Property Does Not Avoid Probate

The Second Pillar: Asset Verification. Verifying assets is the second pillar in an estate plan that will not fail. Most attorneys do not assist clients with retitling assets as a part of their estate planning representation. Instead, they place the burden on the client to contact and deal with each bank, institution, human resources department, and insurance company. In most cases, the mountain of paperwork, institutional requirements, and institutions’ inability to easily process documents prevent clients from correctly aligning the assets with the trust.

Updating

Keep Everything Up To Date

The Third Pillar: Updating. We have reviewed estate plans that have not been looked at in forty years – and usually after something has gone wrong. Proper drafting, Asset Alignment, and Asset Verification are a good base. But updated is also necessary. The family and life events are not static. Things change. And with the changes in our family although the client may not recognize the legal solution, the estate planning lawyer will. Updating includes changes in assets, family situations, and the law that are integral to making sure the plan works and that family is taken care of. Only a process that keeps track of the changes in your life, but also controls the cost in terms of dollars and time to make those necessary changes and focused on results will take care of the family when it really matters – in a time of crisis, disability or death.

Inform

Bring Together and Inform Key Participants

The Fourth Pillar: Instructions. Understanding your estate plan is important. But perhaps more important is that those people who will play a role after you’re gone understand it as well. Your trustees, personal representatives, disability panel members, trusted people and professionals should be prepared and informed about your estate plan. Preparation does not mean disclosing assets or other sensitive information. The Instructions Book Pillar of estate planning gives those you trust the information necessary to execute your plan and allows them to clarify their roles before your death, disability, or any crisis which may call upon them.