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"The Ultimate
Consumer's Guide To Understanding Probate, and How to Avoid It!"
People who could afford high priced lawyers and financial advisors have always known about and taken advantage of the benefits of a Living Trust to pass on property from one generation to the next. Not surprisingly, those high priced 'estate planners' kept the secrets of a living trust to themselves and shared its benefits only with those who could afford to pay their hefty fees.
Lawyers routinely charge from a low of about $500.00 to as much as $2,000.00 (or more) for 'setting up' a living trust. In the typical law office that means the lawyer's secretary types up the documents required to establish a trust and transfer your property into the trust, and the lawyer collects the fee. There is certainly inherently wrong with a lawyer charging whatever the market will bear for his/her services. BUT, there is also nothing wrong with refusing to pay for those services if you choose to handle your own legal affairs, and keeping the fee that would otherwise have gone to a lawyer for yourself.
Everyone is familiar with life insurance. A policy owner buys a
policy from an insurance agent, pays for the policy (usually in
monthly installments), and upon the owner's death, the property,
in this case, money; is transferred (paid) almost immediately,
directly to the person designated by the policy's owner - a named
beneficiary or beneficiaries. There is no delay, no court,
lawyers, or administrators involved, no legal fees - in short -
no hassles. The beneficiary simply sends a copy of the death
certificate and a brief claim form to the insurance company which
verifies the policy's amount and designated beneficiary and
promptly pays the claim by sending the beneficiary a check - just
the way the policy's purchaser and owner intended. The simplicity
of the system is a testament to old fashioned common sense.
In a perfect world, joint tenancy with right of survivorship, in
the past, may have achieved exactly what the deceased intended,
in recent years it has often been the cause of more problems then
it has solved.
I know a man in his early 60's who was forced to place his wife
in a nursing home as the result of Altzheimers disease. He
checked out nursing homes, selected the best possible place to
care for his wife and visited her daily. Two years later, he was
faced with a major expense in replacing the roof and some of its
rotted decking on his home. He went to the banker he and his wife
had done business with for 40 years and explained his reasons for
taking out a small loan on his house to pay for the repairs.
The banker was glad to lend the needed money on the home EXCEPT
for one problem. The deed to the home was held in joint tenancy
with his wife who was now in a nursing home and not mentally
competent to sign documents for the loan.
After talking to a lawyer, the man was shocked to learn that the
only way he could take out a loan for the needed repairs on his
home was to go to the court, have his wife declared incompetent
have himself appointed as her legal guardian thereby enabling him
to secure the loan. The cost - the lawyer told him - was a mere
$3,500 and the whole process could be completed in under 6
months. Not much help when the man lives on a pension and his
roof is leaking now; causing further damage to his decaying roof
decking daily.
By stipulating in your living trust who is to become the trustee
and manage your property in the event you become incapacitated
and incapable of managing your own property, you can save
yourself from the humiliation of having your loved ones forced to
go to court and ask to be appointed as your guardian in the even
you become unable to manage your assets.
By placing the name of one or all of your children on your deed,
in order to pass on the property and avoid the expense and delay
of probate, you are transferring ownership of your home to your
child(ren)-now- at the time you file the deed for record.
In the imperfect 'real world'; if your child, who is a joint
tenant on your deed, should get divorced, your ex-son/daughter-
in-law could very well end up owning 50% of your child's interest
in your home or 25% of your home! Now that's a frightening
thought.
Since your joint tenants with right of survivorship are 'owners'
of your home, if your child should be sued for something as
common place as a car wreck, and a judgment entered against your
child, the judgement would attach to your home under joint
tenancy. Likewise, the IRS can put your home (where you live)
into foreclosure to execute a lien against one of your joint
tenant children who has gotten into tax trouble with the IRS;
something which happens quite often.
Many parents, assuming that all of their children will survive
them and wanting to keep peace in the family, place all of their
children on the deed to their home as joint tenants with right of
survivorship, compounding the potential for disaster. If you
asked these parents who they intended to have their child's
'share' in the event one of their children should precede them in
death; virtually all would say - their grandchildren of course.
The children of their deceased child. Unfortunately, that is not
would happen under joint tenancy with right of survivorship. The
home would belong only to the surviving joint tenants - all of
your other children - and not to your grandchildren. The family
of your deceased child would be totally left out of what should
reasonably have been their inheritance.
States are even finding 'loop holes' in the joint tenancy
transfer of property by routinely enacting laws and adopting
administrative procedures (no doubt spurred on by lawyers and
probate judges), that require a joint tenant to "pay the toll" on
the road to property ownership - despite their joint tenant
status on the deed.
Frequently, states require a joint tenant to file an instrument
with a local clerk transferring full ownership of all real estate
held jointly with a now deceased tenant solely to him or her
self. While in and of itself, this is probably a good idea, for a
number of sound common sense reasons, not the least of which is
to simplify ownership for future sale or transfer of the property
- there is a catch. More and more often clerks are refusing to
accept for filing the instrument required to "clean up the deed"
without a tax clearance. Guess where the tax clearance comes
from? The probate court! Probate courts routinely collect a
percentage of the entire estate for simply providing the
surviving joint tenant the required tax clearance to transfer
ownership of the real property.
There are also major tax liabilities, such as capital gains tax,
that can serve to frustrate the purpose of deeding your property
to your heir(s) during your life time. See the Capital Gains Tax
Section below.
Living or Inter Vivos Trust: An Inter Vivos, or Living
Trust as it is more commonly called is quite simply a trust that
Livesand benefits you - now - while you, as the
trust's creator are alive. You have complete control over your
revocable living trust to manage your own affairs and property
and to change the terms and conditions of your trust at any time,
during your lifetime. You can make any bequest to anyone in your
trust exactly as you can in your will. If you choose to leave one
of your heirs only $1 in your will, you can do that in your inter
vivos trust too. Upon your death, your successor trustee you
specified in your trust to succeed you, simply steps in and
immediately has essentially the same control over your property
that you had during your life time. There is no probate or 10%
probate costs, no lawyers, no courts, no administrators, no
estate appraisers, and no two to five year delay in settling your
estate.
An inter vivos "living" trust makes the assets of your estate
immediately available to your rightful heirs, insuring
uninterrupted income and access to your assets for your heirs.
Your property is transferred under the terms of your trust
without intrusion by a probate court and without creating a
record of your estate's value and distribution to be a matter of
public record.
For example, if a bank account is a part of your trust, your
successor/beneficiary heir simply walks into the bank with a
certificate of your death and walks out with the money - exactly
as you intended, without undue and unnecessary expense and delay.
If your home is a part of your family estate trust, your
successor/beneficiary heir simply files a deed with the clerks
office, paying the filing fee, (about $10), transferring
ownership of the home to your designated heir.
If a business is part of your estate, your successor/beneficiary
heir simply continues the business uninterrupted; something that
is all but impossible under a will, given the lengthy delays of
probate and the effect of 'freezing' your estate - including your
business - during the probate process. Countless small business
have been forced out of business simply because of the restraints
and confines of the probate process.
Married couples commonly set up what is usually called a 'family
trust". The spouses retain control over their property during
their lifetime to do with as they see fit, provided they remain
able to do so, and in the event one of the spouses becomes
incapacitated for some reason, or predeceases their spouse, the
remaining competent spouse continues to manage the couple's
property. The couples' children are usually named as successor
trustee(s) to take the property upon the death of both parties.
The purpose of probate is to transfer property from its owner
(you), to your heirs after your death, under the terms of your
will, or if you leave no will; to distribute your property to
those persons the state has designated as your heirs should you
die intestate (without leaving a will. Unfortunately, that
necessarily means your heirs will have to endure (and survive),
the process of having your estate probated.
The probate process has evolved into what can only accurately be
described in the modern real world as- a lengthy,
shamefully expensive legal nightmare;
allowing (if not blatantly encouraging) the legal profession
to profit, at the expense of your heirs, from your estate's
assets - the property you worked so hard to earn.
The present probate system permits widows and children to be
quite literally 'robbed' of a large portion of their rightful
inheritance - all under the pretext of protecting their
interests. It has become a long drawn out process, essentially
freezing an estate and taking on average 2-5 years to complete;
where lawyers, administrators, estate appraisers, guardians,
bonding companies and clerks are all legally permitted to bilk an
estate of a large percentage of its assets - your assets.
Financial Costs
In most states, allowable probate fees are set out in the laws of
the individual state as a percentage of the gross
value of the entire estate; from 3.8% in Utah to as much
as 11% in Alaska. Most financial experts estimate that
approximately 10% of a small to medium size estate's overall
gross value is generally lost to the rightful heirs; needlessly
paid out in probate costs. The percentage will be usually less
for estates of greater value, yielding a greater dollar amount to
the probate professionals.
Emotional Costs
The trauma of being subjected to the probate process is magnified
many times over by all but consuming the rightful heirs' lives
during the process of probating an estate. After having suffered
through the loss of a loved one, the last thing a bereaved heir
needs is to be victimized by a swarm of probate 'professionals'.
Probate can be an all consuming process essentially monopolizing
the lives of the estate's heirs. The estate is basically 'frozen'
pending the probate of the estate. Funds can not be distributed,
bank accounts and other assets are frozen and placed under the
control of the probate court and with a few exceptions which
allow some income to continue to the widow or widower, nothing is
distributed for the benefit of the children or other heirs during
the process. Until the probate nightmare is over, your rightful
heirs are at the mercy of a merciless system.
Lawyer's Financial Interests
All laws are by and large written by lawyers, since legislators
are overwhelmingly also lawyers who bring to the legislature
their inherent professional bias for protecting their own
professional interests and the financial interests of their peers
- other lawyers.
Lawyers have a vested future financial interests in their clients
executing a will rather than a living trust; even though lawyers
commonly prepare wills for their clients for as little as $50.
Lawyers build what is commonly referred to as their
will file. A lawyer's will file is quite simply a
collection of the wills the lawyer has drafted, usually for a
nominal fee, and from which the lawyer hopes at a later date to
receive a hefty profit, (usually several thousand dollars worth
of profit), - by handling the probate of the will for their
client's estate and heirs. It is little wonder that attorneys
have not been enthusiastic about the secret benefits of a
living inter vivos trust becoming common knowledge. It quite
simply is not in a lawyer's financial interest for their clients
to execute an inter vivos trust rather than a will.
Lawyers who derive a substantial part of their income from the
probate system are not likely to willingly 'kill the goose that
lays the golden eggs'.
The Wall Street Journal wrote in an article on efforts to
reform probate and create a Uniform Probate Code; "attempts to
reform probate courts aren't new but rarely do they succeed
because few lawyers and fewer judges want to disturb the gravy
train dispensing them such huge favors".
Not only did lawyers want to keep the benefits of a living trust
to themselves, they fought to do just that. When Norman Dacey
published the first widely available book detailing the hazards
of the probate system and how to avoid them - including large
legal fees - by using a living trust to transfer property, in
1965; he was promptly sued, and sued and sued yet again by
lawyers desperately trying to stop this information from being
widely available to the general public.
Score one for the 1st Amendment - obviously the lawyers lost the
battle. Information is now widely available from any number of
sources about the availability and advantages of a living trust
to transfer property. Information about living trusts is becoming
more and more widely available as magazines, Financial columns in
news papers, talk shows etc. routinely tout the very substantial
advantages of a Living Trust over a will as a means to transfer
property.
Recently some lawyers, recognizing the popularity of living
trusts, have started holding what they advertise as "Seminars"
on the subject of living trusts. While the seminars are generally
free to the public, (some charge a 'registration' fee of $25-
$50), they are aimed at securing new clients for the lawyer
holding the seminar. One lawyer frequently travels the south
running full page newspaper adds and holding 'free' seminars. He
routinely 'offers' to set up a living trust for all those
attending his seminar, for the 'nominal' fee of $595 ($895 if you
own a home).
For many 'real world' reasons a trust may be essential to
providing for your heirs. For families with a special needs
child, it may be preferable to leave an income from a trust
rather than a lump sum inheritance which could be quickly 'lost'
leaving your child without the means of minimum support.
For those of us born of a different generation, the sad truth is
that many families for whatever reason or for no reason at all;
are now faced with a heartbreaking reality - at least one of
their children or grandchildren is besieged by a substance abuse
problem. These too are children for whom a lump sum inheritance
may not be the most prudent choice.
Setting up a living trust has no effect at all on your income
taxes. Your income tax is neither more or less because of the
trust. If you act as your own trustee of your trust, as most
people do, you don't even need a separate tax payer
identification number. You continue to file your income taxes as
you always have reporting the trust's income, losses, and
deductions on your individual income tax forms.
Currently, each person can claim a $600,000 inheritance tax
exemption which can be doubled to $1,2 million for a couple.
Simply put, each person is entitled to pass on $600,000 in
property to their heirs without paying the 40% federal
inheritance tax. Only about 2% of Americans are required to pay
any federal inheritance tax under this exemption. BUT, serious
consideration is being given to reducing the exemption to
$200,000 in an effort to raise income and 'balance the federal
budget'. The $200,000 exemption would indeed raise federal
revenue since nearly 62% of Americans would pay the 40%
inheritance tax, and state inheritance taxes would be sure to
follow the feds' lead. When one spouse dies, their exemption dies
with them. An inter vivos trust maximizes the exemption and
avoids the inheritance tax altogether, regardless of the current
amount of federal inheritance tax exemption.
Capital gains tax is not nearly as difficult to understand as it
may first seem. The easiest way to explain the basic premise is
to put it in real world terms. For example: if you bought your
home for $50,000 ten or 20 years ago, and it is now worth
$100,000, you have a capital gain or profit of $50,000.
Your profit, or capital gain is usually taxed at a 28% rate. In
this example, 28% of your $50,000 profit would be a capital tax
of $14,000. A hefty chunk of your profit to say the least.
There are certain exemptions from the capital gains tax that can
serve to minimize or totally eliminate paying that outrageous
$14,000.
First, if you are over age 55 and have lived in your home for 3
out of the last 5 years, you can claim a one time $149,000
capital gains tax exemption. Simply meaning that you would not be
liable for capital gains tax on the first $149,000 of your profit
from the sale of your home - your capital gain.
Secondly, if you 'roll over' your profit (your capital gains) by
purchasing a home of equal or greater value than the one you just
sold, (within 2 years of the sale), essentially investing your
profit from the sale of your home; you pay no capital gains tax
on the profit you made from the sale. At least not right now.
If you have not used your exemption by the time you die, the
exemption dies with you, it does not pass to your heirs.
Deeding your home to your heirs during your lifetime to avoid
probate, does not avoid capital gains tax. Your heirs would
simply receive the property with the same tax base that you had
and they will pay the 28% capital gains tax.
If on the other hand, you place your home in your family's living
trust, your successor/beneficiary trustee, takes the property on
what is called a "stepped up tax basis". Simply meaning that the
only tax your heirs may have to pay is tax on the increased value
of your property between the date of your death and the date of
the property's sale. For example, if your home is worth $100,000
at the time of your death and $110,000 when your heir sells it
(if it is sold), there is only a $10,000 profit subject to tax
regardless of what you paid for the home originally. The
potential tax savings are tremendous.
Using the same example as we did earlier: You paid $50,000 for
your home. At the time of your death, when your
successor/beneficiary heir takes your property, it is valued at
$100,000. Later, your heir sells the home for $110,000. Your heir
has made only a $10,000 profit subject to tax regardless of how
much you originally paid for the house.
In order to challenge a living trust, the disgruntled party would
first have to hire a lawyer, almost certainly paying at least a
substantial portion of the lawyer's fee in advance. Next, the
lawyer would have to file a suit on behalf of their disgruntled
client against each and every beneficiary of the trust, in order
to recover any possible assets claimed.
The reality is that in the meantime, while the disgruntled party
is hiring a lawyer and bringing a civil suit, the trustee is free
to distribute the trust as you specified, without interference,
and without being tied up in lengthy litigation. It is not at all
uncommon for a trust to be totally distributed immediately
following funeral services. Frequently, by the time the
disgruntled party has even talked to a lawyer, the trust is
distributed to the beneficiaries making it next to impossible to
recover any assets the disgruntled party might eventually win in
a civil court action.
All that is required is to execute a Trust document usually
called a "Declaration of Trust", containing information about
you, your spouse, who is to succeed you as trustee and how you
want your property distributed. Then all that remains is to
transfer your property into the trust.
Transferring your property into your trust is a simple matter of
making a list of your property - a schedule of assets - to be
transferred into the trust and any supporting documents to
accomplish the transfer. For example, to transfer ownership of
your home, usually your single largest asset, to your trust, you
would simply file a Quit Claim Deed from yourself as an
individual, to yourself as Trustee, with your local clerk paying
the fee for filing deeds of about $8-$10.00). The process is the
same even if you and your spouse, or one of your children, are
both currently on the deed as joint tenants with right of
survivorship except of course you would both execute a Quit Claim
Deed from yourselves as Joint Tenanat to Yourselves as Joint
Trustees. Its that simple.
In all honesty, we all know you can purchase 'kits' or 'do it
yourself' books from a variety of sources which claim to give you
everything you need to set up your own living trust. Some of them
do a fair job of living up to their claims. As with anything
else, some are better than others, and some are just down right
horrible; complicating, confusing, and frustrating what should be
a reasonably simple process.
Once again, Pro Se Publication has taken the lead in setting the
standard for what good quality self instruction materials should
be; based on our long standing company policy which quite simply
is: All materials must be first and foremost based on solid
reliable information; enabling you to make your own informed
decisions about the issues that impact and affect your life and
lives of your family. They must be simple - without unnecessary
legal mumbo jumbo, contain all required forms and be self
explanatory whenever possible. They must include as much
explanation and as many examples as is reasonably necessary to
accomplish the task at hand - no more and no less (repetition is
not a virtue and serves no purpose).
The package we have designed goes beyond simply enabling you
to set up your own living trust and includes all of the following
estate planning documents:
As you 'shop around' for assistance and information in planning
your estate, keep in mind the list of the above documents and be
aware of what exactly it is you are paying for. We believe that
when you compare our package to others the, difference will
become quickly obvious.
Go to Book Order Form
There are only 3 kinds of property which can pass to your
rightful heirs at your death without going through the probate
procedure:
Countless Americans have been lulled into a false sense of
security; believing that by holding all deeds and titles to their
property jointly with their spouse or children with right of
survivorship meaning that the surviving joint tenant (usually a
spouse or child) takes full ownership to the property; they have
no need for a will or trust. They believe that after their death,
their property will simply pass to the joint tenant, (owner),
without the need for probate or additional expense.
INCOME TAXES
"Contesting" A Living Trust
We have heard horror stories of a disgruntled relative that
challenged a will putting the rightful heirs through a nightmare
of legal wrangling through the probate court. Usually the heirs
end up 'settling' with the contestee just to get the estate
through probate and end the nightmare - despite the terms of the
deceased's will. This often amounts to nothing less than
'blackmail'. Heirs threatened with years of costly litigation
which may 'eat up' a substantial part of the estate often find it
easier to simply agree to settle with the disgruntled person
rather than expend the time, energy and emotion required to fight
it out in court.
Setting Up A Living Trust
The process of setting up a living trust is surprisingly
simple. There is no court proceeding required. Couples commonly
set up a trust in which they are both joint trustees. In the
event one of the spouses predeceases the other, the remaining
spouse continues as sole trustee. Upon the death of both joint
trustees, your property would pass to your beneficiaries under
the terms of your trust document, for example, your children.
Because of numerous requests we have received from those who
simply hate to 'fill out forms', and although there is no
requirement that trust documents be typed (an ink pen will work
just fine; printed letters prefered), or for those who would
simply prefer to have the documents typed, but either don't have
the time or inclination to type them themselves; we are now
offering a typing service for those who want to have their trust
documents typed. The typing service fee is based on the number of
documents to be typed. Note: this typing service is not available
to Texas residents.
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