Estate planning to avoid probate

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macman_65
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Estate planning to avoid probate

Postby macman_65 » Fri Jul 14, 2017 1:12 pm

I am the executor of my mother's estate - appx 2M.
She is 78 but in relative good health, golfs 5 days a week and still shoots in the 40's (on occasion). I would guess she has another 15-20 years but who knows. She has made it clear to me that she would like to set up the estate to avoid probate.

I know she has set up a living trust - I don't have the particulars but I know that I have been named executor of the trust and power of attorney. I am the youngest of her 4 kids and my dad has passed. She is going to send me a copy of the trust documents.

Here are her assets and based on her desire on passing them down this is what I think needs to be done.
Please let me know what I've missed or if something else should be done with them.

House - 160K - promised to my oldest brother - so I've indicated that it should have a TOD to him.
Condo - 250K - will be sold with proceeds split - I think this should be titled to the trust.

Bank accounts (varying amounts) - split among kids - should be placed in trust.
One bank account (~110K) promised to me as executor and to help cover expenses - she has said she has already set this up to be TOD to me.

2 cars (probably worth 20K) - not sure what happens to these - TOD on death to me maybe so I can sell them and distribute monies to heirs.

IRA's (varying amounts) - She has indicated that they already have beneficiaries indicated to be split between 4 kids.

Stock (primarily in ABBV/ABT) (appx 1M I'm guessing) - she had inherited this from her father - I had suggested diversifying but at this point in her life she is not really interested in that and has faith in the companies. (And the gains tax would be a lot) - Some stock has been promised to grand kids and great grand kids (via will) with remainder to go to the kids. I would think this should be placed in the trust.

Again, please let me know if I've missed anything or if this is a decent plan.
Thanks for your time.

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dm200
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Re: Estate planning to avoid probate

Postby dm200 » Fri Jul 14, 2017 1:26 pm

Depending on the state of residence, the nature of the assets and other details, avoiding probate may not, on balance, be something you/she may really want to do. it seems to me, as the situation is described, proper, fair and reasonable distribution of the assets should be the highest priority.

macman_65
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Re: Estate planning to avoid probate

Postby macman_65 » Fri Jul 14, 2017 1:38 pm

dm200 wrote:Depending on the state of residence, the nature of the assets and other details, avoiding probate may not, on balance, be something you/she may really want to do. it seems to me, as the situation is described, proper, fair and reasonable distribution of the assets should be the highest priority.


Under what circumstances would going to probate be desirable?
My understanding is that it would incur costs and delay the distribution of assets.

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dm200
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Re: Estate planning to avoid probate

Postby dm200 » Fri Jul 14, 2017 1:45 pm

macman_65 wrote:
dm200 wrote:Depending on the state of residence, the nature of the assets and other details, avoiding probate may not, on balance, be something you/she may really want to do. it seems to me, as the situation is described, proper, fair and reasonable distribution of the assets should be the highest priority.

Under what circumstances would going to probate be desirable?
My understanding is that it would incur costs and delay the distribution of assets.


My brother handled distribution of several family members estates as executor. They went through probate and there was no significant delay in distribution of the assets. He olny engaged an attorney for the small portion of tasks where an attorney was needed.

Depending on the state and other details, the costs of avoiding probate may be higher than going through probate. I suggest consulting an experience estate planning attorney in the applicable state, where such an attorney is impartial and objective about probate vs trust (Including the use of TOD/POD designations)

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EyeYield
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Re: Estate planning to avoid probate

Postby EyeYield » Fri Jul 14, 2017 1:59 pm

Yes, it's very state dependent, check the statute for your state. You don't want to go through probate in California.
In most states, lawyers charge by the hour or collect a flat fee for probate work. Not so in California. It’s one of only a few states that let lawyers charge a “statutory fee”—an amount that is a percentage of the value of the assets that go through probate. The percentages are set out in state statutes. (Cal. Probate Code § § 10810, 10811.)
Here are the current rates:
4% of the first $100,000 of the gross value of the probate estate
3% of the next $100,000
2% of the next $800,000
1% of the next $9 million
.5% of the next $15 million
"The stock market is a giant distraction from the business of investing." - Jack Bogle

macman_65
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Re: Estate planning to avoid probate

Postby macman_65 » Fri Jul 14, 2017 2:05 pm

Her time is split between Illinois (house) and Utah (condo).

NotWhoYouThink
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Re: Estate planning to avoid probate

Postby NotWhoYouThink » Fri Jul 14, 2017 2:40 pm

The "plan" you describe looks somewhere between a hot mess and a dumpster fire. A house to your brother and he still gets 1/4 of the rest? $110K to you for "expenses" and being executor, plus the cars?

Living people can have POAs, estates can have executors, and trusts have trustees. Is the trust in place and funded now? Is she in the process of funding it? Will it be created by her will at her death? Will you be a trustee only after her death, or are you a trustee now?

Details (or facts, as the lawyers call them) matter. Sounds like she and a lawyer need to sit down and figure out the details, because it looks kind of hand wavey now, and hand wavey stuff causes problems for families. Trying to cover some things in the will and other things in a trust and other things through TOD is likely to leave gaps. What if one of your siblings dies before she does?
Good luck.

afan
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Re: Estate planning to avoid probate

Postby afan » Fri Jul 14, 2017 4:15 pm

The most important thing is for mom to decide who she wants to get what and whether she wants each child to end up with approximately equal inheritances.

In her case, I WOULD use a trust. This will simplify managing two pieces of real estate in two different states. I would collect all of her nonretirement assets in a trust. When she passes, her trustee and personal representative- in this case the same person- will have a much simpler job. It will be important to have all the financial assets together since there will be expenses and it would seem most reasonable for them to be paid out of the joint pot, then divided among the children as mom desires after the expenses are paid.

If there are multiple assets that pass via TOD then it could be difficult or impossible to handle the expenses this way. The money that is left in her trust/estate might be depleted by expenses and those who did not get equal shares of TOD assets may be out of luck.

If someone gets a larger share of money as TOD, then it is not as simple as just giving to the other heirs once the bills have been paid. These would be taxable gifts. The money would also be available to claims of creditors of the person who got the money TOD. This is not a good plan.

The cost of setting up the trust should not be more than the cost of writing a will that includes a trust, at least according to bsteiner, who surely knows.

I have no idea what is involved in probate in either state where she has property, but given a choice between probate in both states and probate in neither, I cannot see the appeal of choosing the former.

Having done probate for a relative who passed several years ago- it was not horrible, but it was more work than not doing it. This relative had a trust, with most assets in it (thankfully including the real estate) so the amounts involved with probate were small. Still, it meant filling out a bunch of forms, having the probate office lose them, sending them in again, going to the office in person to get proof that the second set had been received... All of which took time and travel.It would have been very frustrating if more than a small part of the inheritance had been tied up. As it was, one beneficiary who needed the money was able to start drawing on it long before probate was over because most of the assets never went through probate. Most of the inheritances were distributed as we were clear that all expenses had been paid, from the trust. Kept the last amount to be sure the estate tax return had been accepted, which took ~18 months.

One advantage of going through the task of retitling now, while mom is vigorous, is that you get it taken care of while she can participate. If you wait and hope to handle it in probate you will have to make sure you know all the assets and where they are. Dealing with anything with a power of attorney, I found, was a nightmare. Dealing with the same issues as a trustee was easy.

So...
mom needs to get an estate planning attorney
decide how she wants to divide her assets
collect all the information on accounts
retitle things, especially real estate, in the name of the trust.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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dm200
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Re: Estate planning to avoid probate

Postby dm200 » Fri Jul 14, 2017 4:50 pm

My opinion is that POD/TOD for large sums can have adverse unintended consequences that unfairly split the assets of the deceased. In my opinion, having a centralized will and/or trust that provides for contingencies is much better than piecemeal POD/TOD, or even beneficiaries on retirement accounts.

Just one sample:

You have three siblings and you want 1/3 of assets to go to each. Let's say "Chris" is single and doing fine. "Pat" is a single parent of 2 and struggling. "Kelly" is married with 3 children and is doing OK. Let's also say that the 3 siblings are estranged and will never help out the others. To avoid family controversy, you want all 3 to split your assets equally and the amounts are significant. You make all three POD/TOD beneficiaries of your accounts and three equal beneficiaries of retirement accounts.

- Scenario ONE: You die and all three are living. They each get 1/3 - just as you want

- Scenario TWO: "Pat" predeceases you by two days and "Kelly" predeceases you by ONE day. Now you die and "Chris" gets everything. Is that what you want? I doubt it. A comprehensive will or trust combination can provide, in scenario two and others, provisions for the children of the siblings.

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CABob
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Re: Estate planning to avoid probate

Postby CABob » Fri Jul 14, 2017 5:11 pm

With an estate of this apparent size and complexity I think that perhaps a visit and consultation with an estate lawyer is in order. Perhaps the lawyer who prepared the existing trust and will is the one to see. It sounds to me that some of the assets should have been addressed and maybe have not been addressed adequately. Properly done I would think that the distribution of assets would be done fairly and somewhat easily for you. the fact that there are assets in two states might be an extra wrinkle.
Bob

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Re: Estate planning to avoid probate

Postby 123 » Fri Jul 14, 2017 9:22 pm

Use POD on accounts and establishing beneficiaries for accounts seems to possibly work okay if there are a small number of beneficiaries, like 2 or 3. If there are a large number of beneficiaries, or beneficiaries are of multiple generations, or based on the family ages new beneficiaries (children) may materialize a trust or probate resolution may yield an outcome closer to the desired wishes of the deceased. I agree with the earlier post that a "mix and match" set-up using POD for some assets and a trust for others just sounds like it is likely to cause problems and/or an undesired/inequitable distribution.
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bsteiner
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Re: Estate planning to avoid probate

Postby bsteiner » Sun Jul 16, 2017 1:29 pm

The most important issue is whether to provide for the children outright or in trust. Providing for the children in trust rather than outright will keep the children's inheritances out of their estates, and will protect their inheritances against their creditors and spouses, and Medicaid. With four children, there's a good chance that at least one child will do well enough to have a taxable estate, have a creditor problem, get divorced, outlive his/her spouse and remarry, or go into a nursing home and want Medicaid.

She'll have to consider whether the son who gets the house gets it off the top, or as part of his share.

As others have pointed out, except for the retirement benefits (which need to have beneficiary designations to get the stretch and protect against her creditors), piecemeal planning, POD and TOD are likely to create more problems than they'll solve. She might want to provide for the grandchildren and great-grandchildren out of her IRA benefits, since that will get a longer stretch.

If she's in a low bracket, she may be able to either do some Roth conversions in a low bracket or sell some of the concentrated positions at a zero capital gains tax rate. It may be hard to do both at the same time.

Probating the Will is probably the least important issue. Utah is a Uniform Probate Code state, so that the procedures there are simplified. Illinois will probably be a bit more work. While it may not be significant enough to affect the decision, if she provides for her children in trust rather than outright (which almost all of our clients would do), depending on where the trustees of each child are, and where the trusts are administered, a revocable trust might provide some state income tax savings.

If she's domiciled in Illinois at her death, her children's trusts will be subject to Illinois income tax if they're created under her Will. However, under the Linn case, involving the Pritzker family, their trusts under a revocable trust won't be subject to Illinois income tax absent some ongoing connection to Illinois (e.g., a trustee in Illinois, real or tangible property in Illinois, or Illinois source income): http://illinoiscourts.gov/Opinions/Appe ... 121055.pdf.

Similarly, if she's domiciled in Utah at her death, her children's trusts will be subject to Utah income tax if they're created under her Will. However, under Utah Code § 75-7-103(i)(iii), their trusts under a revocable trust won't be subject to Utah income tax (except on any Utah source income) unless they're administered in Utah: https://le.utah.gov/xcode/Title75/Chapt ... 0118000101.

Given the modest size of her estate (I know $2 million is larger than 95% or more of all estates, but it's still modest in the context of estate planning), it's important to keep the planning from becoming overly complicated or expensive.

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sergeant
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Re: Estate planning to avoid probate

Postby sergeant » Sun Jul 16, 2017 2:08 pm

If she can score in the 40's in golf I recommend she immediately obtain her LPGA card. She would win every tournament she entered. :D
Lincoln 3 EOW!

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Jerry55
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Re: Estate planning to avoid probate

Postby Jerry55 » Sun Jul 16, 2017 5:22 pm

I'm in the POD (payable on death) or TOD (transfer on death) camp.

I only have 3 children, (Like that's not enough) but I can change those POD/TOD at will without making out a new will, and it bypasses Probate.
Everything is split down the middle between the three children (no wife) but my youngest daughter lives with me currently, while the other 2 are in NJ and Portland, Oregon. They have their spouses and such, and will probably never move as they are anchored there (for the moment), so my will only stipulates that the home goes to my daughter living with me at this moment.

My situation is quite simple, but things can become complicated at anytime, so it's good to have fall-backs.
Retired 12/19/2012 @ age 57 | Good Bye Tension, Hello Pension !!!

bsteiner
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Re: Estate planning to avoid probate

Postby bsteiner » Sun Jul 16, 2017 5:31 pm

Jerry55 wrote:I'm in the POD (payable on death) or TOD (transfer on death) camp.

I only have 3 children, (Like that's not enough) but I can change those POD/TOD at will without making out a new will, and it bypasses Probate.

Everything is split down the middle between the three children (no wife) but my youngest daughter lives with me currently, while the other 2 are in NJ and Portland, Oregon. They have their spouses and such, and will probably never move as they are anchored there (for the moment), so my will only stipulates that the home goes to my daughter living with me at this moment.

My situation is quite simple, but things can become complicated at anytime, so it's good to have fall-backs.


It's not that simple.

Does she get the house off the top, in addition to her 1/3 share, or is it part of her 1/3 share?

Who will file your final income tax return? How will the income tax on it be paid? How will the cost of preparing the return be paid?

Who will file your estate tax return? How will your estate tax be paid? How will the cost of preparing the return be paid?

Who will pay your debts and expenses?

How will whoever advances your funeral expenses be reimbursed? Will anyone be willing to advance the cost of your funeral without knowing that he/she will be reimbursed?

What if a child does well and has a taxable estate? What if a child has a creditor problem? What if a child gets divorced? What if a child outlives his/her spouse and remarries? What if a child goes into a nursing home and wants Medicaid?

You're creating an exposure to all of these potential issues, but not getting any benefit in exchange for it.

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Jerry55
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Re: Estate planning to avoid probate

Postby Jerry55 » Sun Jul 16, 2017 7:11 pm

bsteiner wrote:
Jerry55 wrote:I'm in the POD (payable on death) or TOD (transfer on death) camp.

I only have 3 children, (Like that's not enough) but I can change those POD/TOD at will without making out a new will, and it bypasses Probate.

Everything is split down the middle between the three children (no wife) but my youngest daughter lives with me currently, while the other 2 are in NJ and Portland, Oregon. They have their spouses and such, and will probably never move as they are anchored there (for the moment), so my will only stipulates that the home goes to my daughter living with me at this moment.

My situation is quite simple, but things can become complicated at anytime, so it's good to have fall-backs.


It's not that simple.

Does she get the house off the top, in addition to her 1/3 share, or is it part of her 1/3 share?

Who will file your final income tax return? How will the income tax on it be paid? How will the cost of preparing the return be paid?

Who will file your estate tax return? How will your estate tax be paid? How will the cost of preparing the return be paid?

Who will pay your debts and expenses?

How will whoever advances your funeral expenses be reimbursed? Will anyone be willing to advance the cost of your funeral without knowing that he/she will be reimbursed?

What if a child does well and has a taxable estate? What if a child has a creditor problem? What if a child gets divorced? What if a child outlives his/her spouse and remarries? What if a child goes into a nursing home and wants Medicaid?

You're creating an exposure to all of these potential issues, but not getting any benefit in exchange for it.




This thread is not about me, but I'm just posting MY opinion, and what I feel is justifiable IMO.

However, I have approx. $50,000.00 in life insurance to be used by my designated executor/executrix.
The house WILL go to my youngest, period (otherwise, split between the older 2 children, as per the will). My executor/executrix are well designated, (3 levels) in order, as I'm sure the other 2 won't have the time to come from the east or west coast to fulfill that obligation, so that story ends right there.

Feel free to do as you wish, as mine has been thought out very carefully with safety guards over the last 15 years.

What if EVERYONE dies ???? Your questions could raise comments and concerns forever, but suffice it to say, "It works for me"
Retired 12/19/2012 @ age 57 | Good Bye Tension, Hello Pension !!!

Gill
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Re: Estate planning to avoid probate

Postby Gill » Sun Jul 16, 2017 7:40 pm

sergeant wrote:If she can score in the 40's in golf I recommend she immediately obtain her LPGA card. She would win every tournament she entered. :D

I hope she's a nine-holer!
Gill


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