The American Dream relies upon and celebrates the acquisition of wealth. When someone appears to be too concerned with such pursuits – or when they seem to others to be using said wealth to acquire unnecessary or too worldly goods – there’s a common reproach Americans use to call attention to the excess: “You can’t take it with you.”
In the American judicial system this is understood all too well. Probate courts exist solely for the purpose of distributing the property or estates of deceased citizens to the proper – or legal – beneficiaries. Lawyers build life-long careers helping clients plan for end-of-life property administration.
You can’t take it with you, but it has to go somewhere.
In estate planning, one of the most popular vehicles for dispersing property to its intended beneficiaries – and keeping it out of the clutches of probate court – is the living trust, according to Copeland & Brown PC partner, Jeremy Brown.
A trust is a legal tool that allows one party, usually a trustee or executor, to hold property for the benefit of another, usually a beneficiary. A living trust is a trust established by a property owner before he or she dies, and it holds the property out of reach of the probate process while an administrator arranges for the property’s disposition.
While a trust is a solid tool for this purpose, Brown said it can only be as effective as its owner is diligent – and that’s where many people fail.
“An attorney can create a trust document that says the client wants this property to go to his children and this property to go to his wife, but if you don’t take the time to get your (property) somehow tied to the trust, it can create a lot of problems,” Brown said.
It’s called “funding” the trust. Once a trust has been established, the property owner goes through the process of establishing beneficiary designation documents that ensure property will transfer into the trust upon death.
“That’s probably the step a lot of people miss,” Brown said. “They don’t properly fund the trust. You want all of your assets to have some string tied to them that pulls them back into the trust. With real estate there’s a thing called a beneficiary deed; with bank accounts there’s a transfer on death designation; with corporate stock your bylaws can have a transfer on death designation so that your interest in the business moves into the trust.”
Combined with a will that spells out exactly who a person’s beneficiaries should be, these legal actions will keep a person’s property from getting caught up in the probate process, or at the least will ensure a speedy probate process, said Brown.
“A lot of clients will create what’s called a pour-over will,” he said. “Sometimes some piece of property doesn’t make it into the trust. Say they bought a car recently, or forgot to add a bank account. The pour-over will can stipulate that whatever property is in the probate bucket will dump over into the trust.”
Brown said that the probate process, while sometimes expensive and timely, isn’t necessarily the evil that many make it out to be.
“It’s not as bad as people think,” he said. “The misconception, I think, is that people think the government is going to get all of their stuff. I can tell you that’s not going to happen. Even if you don’t have a will, the state has graciously written your will for you. Your property will go to your family long before it ever goes to the state.”
But he said there are other, more valid reasons for wanting to avoid the probate process.
“Is probate something you should try to avoid? I think the answer is ‘Yes.’ It costs money, it takes time and it’s open to the public. Because during the probate process your legal representative or your family has to file an inventory of your estate, and that’s public record. A lot of people like to be private, and they don’t like the idea that their estate being run through a public forum.”
Another key issue that could cause problems for a surviving family – and that a property owner can solve ahead of time – are misplaced dispositions, Brown said.
“When you’re assigning beneficiaries, you really have to ask yourself whether these people are going to want your property,” he said. “People say, ‘Well, I want this kid to get this and I want my wife to get that,’ but have you really talked to them about it? They may not want it.”
Brown said it’s a minor consideration – one that won’t have legal ramifications – but it’s one that a property owner may care to make.
“You want this to be a blessing to the person you’re giving it to, not a burden,” he said. “Your preparation, your work, all the expenses you incur during your planning, it really is money well spent, because it makes the process that much easier on your heirs.”
By: David Mink