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Lessons from Probate

Home Estate Planning Lessons from Probate

  • Avatar Larry Ragman 
    Participant
    Status: Other Professional
    Posts: 489
    Joined: 08/30/2018

    My wife and I were recently talking about updating our (very outdated) wills and considering a revocable living trust (RLT) instead to bypass probate since we live in MD, which has a moderately onerous probate. We put the conversation on the shelf as her mom took a bad turn, but I continued to do a little reading on WCI, books like Living Trusts for Everyone, etc. So, here is the point. Despite most of the advice about folks in our wealth and income bracket being better off with a RLT, I was unconvinced about the trust. After all, surviving spouse keeps on trucking, and if both of us were gone the kids would settle a will at probate, not us.

    Well, sadly, her mom died. Of course first we looked to the family issues and the grieving, but have since turned to some of the practical issues of settling the estate. Now I sure wish she had done a RLT rather than a will. Instead we find ourselves trying to figure out all of her accounts, insurance policies, property titles, loans. Of course it is all doable, but I’m told the probate process will take no less than 9 months. The costs are considerable (variable, but ~3% of assets is a ballpark). Not only that, but her will created two trusts, which are going to rack up more legal fees and add tax complications (income tax returns for her, the estate, and potentially the two trusts). At least no federal estate tax due. Checking now to see if the MD exemption for estate tax has been increased to match federal…

    Oh, we are not doing this alone. Good estate lawyer a must because of some family dissent. Yet another reason for a trust!

    Here is how the experience is changing my views. I still may not do the trust, but if I don’t then I’ll spend time setting up our affairs to be transparent to the kids. Probably spend some time with them too (what assets, where, process), but I plan to live a long time so this will be many short conversations rather than one and done. More to the point, I am a lot more likely to use a RLT for the assets that cannot pass with beneficiaries (the properties, joint taxable accounts, etc.)

    Any others out there with recent practical experience probating a will? I’d appreciate any insights.

    #151238 Reply
    Avatar FIREshrink 
    Participant
    Status: Physician
    Posts: 886
    Joined: 01/11/2017

    Last year I probated two estates in 3 different states. There were also trusts but not all assets were placed in the trust, so two trusts plus 6 probate estates. Even though the costs were not high in two of the states, one of the states (California) was quite expensive. The trusts are also not inexpensive to administer. Total legal, accounting, and tax fees for all trust and probate affairs will be over 1/2% of a high 7 figure estate. However, avoiding probate and the publicity of probate are worthy goals in many cases (but not all).

    an RLT is most successful when it avoids probate. In order to do that all/most probatable assets need to have been transferred into the trust. Most states have simplified rules for small estates under some threshold so at least do that; in our state it is $100k and we are very close to that line because we didn’t want to retitle all of our vehicles. However, everything else is in our RLT so we feel we’ve done what we can for our executor.

    For retirement accounts and other assets you plan to pass outside of probate and outside of a trust, make sure the beneficiaries are set up correctly. Two nights before my mom died, my dad and I were frantically updating her beneficiaries online. Not the way you want to spend the last days of your mom’s life (or, as it turned out, my dad’s).

    Most important is making sure your executor and trustee know about all of your assets – location, investments, etc – and how to access important records. To that end we give a sheet summarizing all of our accounts to our executor and trustee each year. That will save a ton of grief later on.

    #151243 Reply
    Avatar Larry Ragman 
    Participant
    Status: Other Professional
    Posts: 489
    Joined: 08/30/2018

    I have made some progress on setting up beneficiaries for the various retirement accounts (where we have a lot of the liquid assets) but Vanguard will not allow beneficiaries for joint taxable accounts. So those are likely headed for the RLT. Ditto the properties even though all three are in Maryland. On the other hand, I’m told it is best for insurance reasons to keep the cars out of the trust. But maybe as we get older we can do some joint titling of the cars.

    I’ll have to look at the MD rules on small estates, but rather than 100k, I think it is a $50k threshold to set it up for the personal property to get distributed via the trust. Good thought though as far as making the RLT more useful.

    #151245 Reply
    Avatar Moomoo 
    Participant
    Status: Physician
    Posts: 28
    Joined: 08/28/2016

    My wife recently passed and we had a RLT set up.  Asset transfers were a no-brainer.  Highly recommended.

    #151258 Reply
    Avatar bean1970 
    Participant
    Status: Physician
    Posts: 467
    Joined: 07/12/2017

    when my SIL died her house was stuck in probate which was painful to her estate because could not list it for sale until out of probate; meanwhile the bills add up (mortgage, insurance, utilities) plus the fees for probate. Since then i’ve never been a fan of probate other than its necessity to “close out your estate” (ie. everything is in the trust or a probate bypass, the state has an empty will in probate which must stay open for a set amount of time based on state, and then its closed to all creditors and crazy relatives).  Some states are more probate friendly than others, but i’d prefer to pass on it……

    #151259 Reply
    Avatar Larry Ragman 
    Participant
    Status: Other Professional
    Posts: 489
    Joined: 08/30/2018

    I am a bit concerned about one of the relatives challenging the will as we settle my MIL’s estate. This is a definite disadvantage  of probate. Fortunately, she had my wife on a checking account with sufficient cash to cover the carrying costs.

    #151261 Reply
    Avatar billy 
    Participant
    Status: Physician
    Posts: 134
    Joined: 04/07/2016

    My wife recently passed and we had a RLT set up.  Asset transfers were a no-brainer.  Highly recommended.

    Click to expand…

    So sorry for your loss.

    If a spouse dies, dont all of their assets automatically transfer to the surviving spouse unless otherwise specified? Was a RLT needed?

    #151262 Reply
    Liked by Zaphod
    Avatar Moomoo 
    Participant
    Status: Physician
    Posts: 28
    Joined: 08/28/2016

    Some real estate assets were mixed in with other family members.  The RLT kept every thing clean.  Also the life insurance benefit was paid to the trust.  I distributed those proceeds in cash to her children.

    #151268 Reply
    Avatar Larry Ragman 
    Participant
    Status: Other Professional
    Posts: 489
    Joined: 08/30/2018

    Some real estate assets were mixed in with other family members.  The RLT kept every thing clean.  Also the life insurance benefit was paid to the trust.  I distributed those proceeds in cash to her children.

    Click to expand…

    Thank you for sharing. Not sure about the family ownership situation of your properties, but for others reading this post I offer that my MIL dealt with her share of our co-owned rental properties some years ago by re-titling them as joint tenants with rights of survivorship. As a practical matter this put them outside the estate. But if her intent had been to leave a share of the properties to other family members, a RLT might have been better. For example, her attorney also put in the will that her share of the properties passed to my wife, who is listed on the deed as having rights of survivorship. I think the idea of also having the properties in the will was to make clear her intent even if redundant in a legal sense, but the re-titling and will efforts together could have been accomplished with a RLT.

    #151295 Reply

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