Unless you are gluten for punishment, do everything you can to avoid probate. Jim’s parents didn’t and it cost him over $200,000. Before I tell you Jim’s story, let me give you some background.
What Is Probate?
When you die, there needs to be a mechanism to pass whatever you own (your estate) to someone else. If you don’t set things up well, that “mechanism” will be probate.
Probate is when the court decides what to do with your assets once you die. The bad news is that probate usually takes a very long time and is very expensive. Your estate pays all the costs. But the good news is the lawyers make a ton of money and get to drive fancy cars and vacation in Paris because of it. 🙁
Back to Jim’s story.
Jim’s father was on his deathbed and his mother wasn’t far behind. Their home and investments were worth just about $700,000 – so they didn’t have to worry about estate taxes. But Jim, an only child, still had to worry about probate – the “mechanism” to transfer the assets. Remember?
Estate tax is one issue, but probate is quite another.
Enter the California Estate Planning Lawyer
Jim’s parents did not have a living trust, but they did have a will. They didn’t even know what a living trust was.
Jim consulted his attorney before his parents died – a smart move. But the attorney seemed more concerned about his own estate rather than Jim’s parents’ assets. He advised that Jim pay him a retainer of $30,000 to handle the estate. He didn’t say anything about taking steps to avoid probate. Unbelievable.
It turns out that this attorney spent most of his time (and earns most of his money) by arguing probate cases. This is a very bad sign. It means that the “mechanism” this attorney uses never works. Remember, the whole idea of estate planning is to avoid probate. It’s like seeing a doctor who spends most of her time defending herself from malpractice suits. Also not a good sign. Right?
Had Jim asked the attorney how often he ends up in probate court he never would have hired him. He didn’t ask that question so he spent the $30,000 retainer plus another $170,000 in court and legal fees to settle the estate. In other words he forked over 30% of the estate to the courts and lawyers!
And you know what? It could have been much worse. Elvis Presley died without having a trust either. His estate shrank from $10 million to $3 million. (Forget about stepping on my blue suede shoes; just get me out of probate!)
What would a good attorney have done?
I’m not an attorney but I think a good lawyer would have at least discussed setting up a living trust or other alternatives to probate. You see, a living trust provides the “mechanism” to move assets from the deceased to the survivors – just like probate. But it costs a small fraction of what probate costs – usually under $3,500 for a super deluxe model. Also, it takes a whole lot less time to complete. While a probate could take years to complete, a trust could disperse assets in a matter of days or weeks. And for those so inclined, you can create your living trust using a legal service rather than using a lawyer. That saves a ton of dough friend.
What is the downside of using a trust? Well, as I said, I’m not an attorney so I can’t give you legal advice, but I can’t think of any downside. Oh…wait…there is one negative consequence of using a trust. It slashes legal fees, so if you’re a probate lawyer it’s really bad news. Pass the Kleenex. (Just remember if you do set a trust, make sure you actually put your assets into the trust correctly.)
Have you had any experiences with probate? How did you find your attorney? How did it work out?
Please remember that I am not providing legal advice. You should consult a good attorney to discuss the pros and cons of trusts and wills before making a decision.
Nice to see Danielle is out there fighting the good fight.
Danielle G. Van Ess says
What a great discussion going on here! When I first switched practice areas to estate planning, I actually had other, more seasoned estate planning attorneys try to mentor me by saying that the money in estate planning practice is to be made in probate. As I understand it, their approach is to write a basic Will now and wait for the big fees when they take it to the Massachusetts Probate and Family Court later. The older or sicker the client, the better then!
I fundamentally disagree with that philosophy. I view my job as my clients’ attorney and counselor at law, to help them fully understand all their options and choose how to create an estate plan with which they feel most comfortable to provide for and protect their families. Moreover, I believe it’s critically important for young, healthy people to plan *now* while they can do so best. Clients who engage a lawyer when their families are just starting out can work with that lawyer throughout their lifetimes to help create and grow their wealth reviewing and updating the plan as their families change and grow too.
Lately, with the challenging economic circumstances most people are currently facing, I have heard a lot of initial resistance to spending money *now* to create solid estate plans. In my opinion, that is like playing Russian Roulette. Sure, you can get lucky 5 out of 6 times and not need your estate plan to work as best as possible, but what about that 6th time? Personally, I’d rather be safe than sorry, especially for my own young children. That means spending a little more now to avoid depriving your children a whole lot more later. Or, to use that old but apt expression, don’t be “penny wise and pound foolish.”
I think the point you make is that the attorney doesn’t set the fees – the court does. I appreciate the clarification.
I still think that the attorney owes the client an effort to try to reduce fees as much as possible and I know you agree. That being the case, if an attorney does not present the trust when it’s appropriate to do so, the client should find a different attorney – hopefully they’ll come to you.
> Neal, I read your newsletter and I think there needs to be some adjustment to your fact situation. First of all, I do many trusts, am a big believer in them. Keep in mind, however, that the legal fees for probate are based on the statute. 4% on the first $100,000 in value, 3% on the next $100,000 and 2 % on the next $800,000. The scale slides lower when dealing with the excess of $1,000,000. There could be additional legal fees for extraordinary duties, such as sales of real property, litigation, tax advice, but the Court regulates this and often finds that extras aren’t warranted in light of the statutory fees. There are rare instances when a will is justified as the transferring vehicle: anticipated litigation, or when the testator doesn’t have close relatives or friends that would suffer if extra expenses associated with probate were incurred.
Once again, I agree with your conclusions but wanted to point out that some of the facts in your case were askew. Regards,
My Journey says
What I am saying instead of a intervivos trust (during life) like a revocable living trust, you create the Credit Shelter Trust at death via a testamentary (created at death) trust.
I am not saying your post was wrong, actually it is correct, and more comprehensive in nature than most attorneys can explain this stuff – I am just saying there are other options.
I appreciate that very much…..and I’m fascinated by your approach. Just goes to show there is always another approach. Thanks again.
My Journey says
The A-B Set up that you speak of and I highlight here:
That set up is irrelevant of whether you are working with a trust or a will. But you are 100% correct the A-B set up is a MUST for wealthier individuals, and you would be shocked about how many lawyers don’t even understand it. It should be noted that I have seen revocable trusts that were simple in nautre where all assets would pass to surviving spouse and then to children.
Again, I really have to emphasize I am not against a Revocable Trust, I just felt the need to explain that it is not a cure all.
I would make sure if we went this route that assets would be moved, I don’t think its malpractice if an Attorney doesn’t proactively move the assets into the trust. Two main reasons, (1) brokerage accounts need people like you to help, an attorney is more or less worthless for those assets; and (2) Sometimes the relationship is transactional in nature and the Attorney warns and guides what to do…it then is in the client’s court.
Just some thoughts.
I agree with you My Journey but a few comments/questions.
a. how can a will “safeguard” the estate tax exclusion without using a trust? I’ll look at your link.
b. for the money attorney’s charge, I think they should follow up to make sure instructions are followed. They could have their paralegal follow up. I mean. damn…they know the clients forget to do it all the time. It’s like selling a car that you know is defective…right?
Just my two cents. Wealth Pilgrim is better with you in the boat! Thanks!
OK. Read your excellent post. What you are saying is that a by-pass will can be used to pass the CSA and another will would be used to pass the amount over the CSA. Is that correct? And all this can be done w/out using any trust….. What are the restrictions on the CSA will and who enforces it?
“they do nothing for estate taxes (zero) it is rare when I come into contact with a revocable trust that actually has been funded with assets.”
I have personally seen many cases where a revocable living trust helped clients avoid estate taxes by use of an A-B trust. Again, I’m not an attorney but in California this has been a very powerful tool. I don’t know about NY law.
On the funding, I agree that some attorneys fail to do their job in making sure the trust is funded. This should be a punishable offense. But I’ve helped clients get this done and it’s really not a big deal – at least for investments. In California, the re-titling is fairly easy and doesn’t trigger a tax (real estate).
Most of the trusts I’ve seen have explicit instructions for clients and all they have to do is go to the bank or see their broker. The attorney should follow up and the lawyers I’ve dealt with have done so.
You are right again – even a good idea can be executed poorly. The same goes with trusts.
To your final point, again, the A-B provision can save hundreds of thousands in estate tax but even if it doesn’t, I’ve tried to mention that it can save lots of money and time versus probate.
Are their problems with a trust? You’ve done a good job in pointing some out. But pound for pound, I’d take a trust over probate any day.
What I take away from our exchange is that – as always – it depends on the situation of the client.
I would never recommend that Everyone get a trust – and I hope I didn’t give that impression. But in the 25 years I’ve been in this business, I’ve never met a client who regretted having a trust – nor have I met a beneficiary who has.
I really appreciate your arguments though. And thanks for the plug in idea. Still learning over here…..
My Journey says
completely and utterly unreleated you should add a comment plugin so I can subscribe when a comment is made.
My Journey says
As you are probably well aware at this point, I love this stuff, and live in this world daily.
You are getting your terms wrong. Not a huge deal until you meet someone who cares. Intestacy is when you die without a Will. The probate process is to prove a will and adminstration is the equivilent of going through probate without a will.
I am not disagreeing with you at all about Trusts being time savers. I just don’t think people really understand (nor did I think your post emphasized nearly enough which is why I commented) that Revocable Trusts are not the end all be all of estate planning. Not only do they do nothing for estate taxes (zero) it is rare when I come into contact with a revocable trust that actually has been funded with assets.
“Good lawyers retitle the real estate.”
have seen estate plans where the plan was created by the best of the best in New York City and it wasn’t that the lawyer didn’t advise the retitling of assets, its that the client didn’t proactively go forward with it.
“The main point of this article is to stay away from an attorney who is not able to provide solutions to the cost and time of probate.”
I do not always recommend Revocable Living Trusts, actually most of the time I do not. I do not think they are usually needed, and the cost in NY to transfer deeds could be ASTRONOMICAL. Another point should be made that even if an attorney recommends a Revocable Living Trust it could be drafted poorly and not follow a client’s testamentary intent.
Notwithstanding, I think it should be emphasized that Revocable Living Trusts do NOTHING for estate taxes (ZERO), and depending on the state they may do nothing for Medicaid.
My Journey says
“Probate is when the court decides what to do with your money once you…eh…..once you no longer need it (you die).”
Probate is from the latin, to prove – it is the process where the court attempts to prove that your Will is your last testament.
“The bad news is that probate usually takes a very long time and is very expensive.”
The length that it takes to probate an estate depends on the state where the decedent was a domicilary prior to dying. In New York, you may be out and good to go in under six months, while in Florida it may take 18 months. There shouldn’t be a blanket statement.
“Had Jim asked the attorney how often he ends up in probate court he never would have hired him.”
This doesn’t even make sense, (1) Because there is no Probate Court. There is a court that handles probate proceedings (In NY it is referred to as the Surrogate’s Court, in other states it may be known as the Orphan Court). (2) Almost every estate has to go to court because it is unlikely that every single asset has been transferred
“What is the downside of using a trust? Well, I’m not an attorney so I can’t give you legal advice, but I can’t think of any downside. Oh…wait…there is one negative consequence of using a trust. It slashes legal fees so if you’re a probate lawyer it’s really bad news. Pass the Kleenex.”
A downside is that every asset needs to be retitled. If you have a couple bank accounts, great, but if you own 4 pieces of property that is the retitling of 4 different pieces of property which can include (depending where you live) deed transfer charges, mortgage problems, etc.
A Revocable Trust is a GREAT tool, but do not believe it is the cure to Surrogate Practice. This whole thing doesn’t even include what happens if there are challengers to the Will OR trust.
Neal Frankle says
My Journey. Thanks for the response. I appreciate how seriously you consider these subjects.
1. I didn’t write about the origins of the word. Probate is in fact what happens when you die intestate.
2. It is much more likely that a probate will take much longer to wind down an estate than a trust.
3. Every estate does not end up in probate. Most people I know have a trust and some remainder asset held jointly. If a person has a trust and doesn’t have all their assets in the trust – or at least the significant assets in trust, they have failed to plan.
4. I don’t think it’s reasonable to throw out the need to do paperwork as a downside to doing smart planning. Good lawyers retitle the real estate and brokers do the investments. Not a problem.
5. As I said, I am not an attorney. I wrote this from my experience. And I have seen numerous cases where probate was very costly and time consuming. It’s easy to avoid this problem My Journey. Trusts, in my experience have fewer challenges than probate too.
You are obviously well read and experienced in this field. The main point of this article is to stay away from an attorney who is not able to provide solutions to the cost and time of probate. Having a trust may be a step in the right direction.
Do you disagree?
chuck wintner says
I have heard that if you set up a living trust, you also pass your liabilities, along with your assets, to your beneficiaries. What do you know about “tenants in common,” which I have heard makes you & your kids co-owners of all of your assets, so that no transfer of any kind needs to be done, and that you do not transfer debts (i.e., student loans) onto them.
Chuck. Great question. This is the subject of an entire post. Stay tuned…..