Probate is considered a dirty word by most seniors. Why is that? Probate can be defined as a court-supervised proceeding where a person’s Last Will and Testament is enforced and administered at the time of death. Probate is also required for a person who dies without a Last Will and Testament. Since it is a court-supervised process, it can be quite expensive (up to 6% of the estate value in some states) and time-consuming (minimum of 6 months in Arkansas). Based on these problems, probate should be avoided if possible. A good estate plan often focuses on probate avoidance. This article will outline some probate avoidance strategies that should be avoided or at least carefully considered, as shortcuts to avoid probate can create more problems than probate itself!
The best probate avoidance plan is the use of a Revocable Living Trust. Trusts are the most popular estate planning document primarily because they avoid probate while at the same time thoroughly addressing all issues that can come up in administering an estate at death. A Trust is simply an agreement that controls your assets while you are alive (with you serving as your own Trustee and remaining in full control), but also controls the distribution of your assets at death (much like your Will would). Trusts are often called Will substitutes as they replace the function of a typical Will.
Rather than using a Trust, many people attempt to avoid probate by other means, most commonly through joint accounts, payable on death (POD) accounts, and transfer on death (TOD) accounts. Joint accounts are when a child or other beneficiary is named as a joint owner. POD accounts designate the beneficiary(s) at death and are available for most bank accounts. TOD accounts (much like POD accounts) are allowed for most investment accounts. These forms of ownership do avoid probate; however, they may create other problems. First, they do not plan for the “what if’s” in life, such as the prior death of a named beneficiary or a beneficiary who has financial or personal problems. Next, they also do not require the payment of your final expenses such as funeral expenses, which may leave other relatives paying for your funeral and your named beneficiaries skipping town.
Jointly owned accounts create an additional risk in that the named joint account owner is an owner of your account, thereby subjecting the assets in said account to their creditor and marital claims. If your family needs access to your funds in the event of your incapacity, your estate plan should have a Power of Attorney to allow such access for your benefit. For this reason, there is no need to have a joint account owner (other than your spouse) with a proper estate plan.
In my experience, these “shortcut” strategies often have poor results and end up costing more in legal fees to clean up the mess left behind. There are often unattended consequences as a result of shortcuts in planning and your family may end up in conflict with one another over what your true intentions were.
Adam Williams is the managing partner at Farrar & Williams, PLLC, a law firm limiting its practice to trusts, estate planning, and elder law, located on the 2nd floor of the Bear State Bank building, 135 Section Line Road, Hot Springs, Arkansas, and can be reached at (501)525-4401 or at email@example.com.
By: Manda Bass