Patinelli & Chang, LLP

How Does a Probate Proceeding Work?

“Although most people would not want a court proceeding on death, many people mistakenly think that a will avoids one.”

A Will, also known as Last Will and Testament, is a legal document that is used in probate court, if a person dies with assets that are in their name alone without a surviving joint owner or beneficiary designated, says the Record Online in the article “Anatomy of a probate proceeding.” The probate process proves the will is valid.

Probate is a judicial or court proceeding, where the probate court has jurisdiction over the assets of the person who has died. The court oversees the payment of debts, taxes and probate fees, in addition to supervising distribution of assets to the person’s beneficiaries. The executor of the will is to manage the probate assets and then report to the judge.

Without a will, things get messy. A similar court proceeding takes place, but it is known as an administrative proceeding, and the manager of the estate is called an administrator, and not the executor.

To start the probate proceeding, the executor completes and submits a probate petition with the probate court. Some executors do this on their own, but most hire an estate planning attorney to help. The attorney knows the process, which keeps things moving along.

The probate petition lists the beneficiaries named in the will, plus certain relatives who must, by law, receive legal notice in the mail. Let’s say that someone disinherits a child in their will. That child receives notice and learns they have been disinherited. Beneficiaries and relatives alike must return paperwork to the court stating that they either consent or object to the provisions of the will.

A disinherited child has the right to file objections with the court, and then begin a battle for inheritance that is known as a will contest. This can become protracted and expensive, drawing out the probate process for years. A will contest places all of the assets in the will in limbo. They cannot be distributed unless the court says they can, which may not occur until the will contest is completed.

The will contest can be resolved in two ways: with a settlement between the parties involved, or with a jury trial. It is always possible that the disinherited person could prevail and be awarded any amount of the inheritance, regardless of what the decedent said in their will.

In addition to the expense and time that probate takes, while the process is going on, assets are frozen. Only when the court gives the all clear does the judge issue what are called “Letters Testamentary,” which allows the executor to start the process of distributing funds. They must open an estate account, apply for a taxpayer ID for the account, collect the assets and ultimately, distribute them, as directed in the will to the beneficiaries.

Can a will contest, or probate be avoided? Avoiding probate, or having selected assets taken out of the estate, is one reason that people use trusts as part of their estate plan. Assets can also be placed in joint ownership, and beneficiaries can be added to accounts, so that the asset goes directly to the beneficiary.

By working closely with an estate planning attorney, you’ll have the opportunity to prepare an estate plan that addresses how you want assets to be distributed, which assets may be placed outside of your estate for an easier transfer to beneficiaries and what you can do to avoid a will contest, if there is a disinheritance situation looming.

Reference: Record Online (August 24, 2019) “Anatomy of a probate proceeding”

Four Giant Estate Planning Mistakes to Avoid

“Americans are drawn to celebrities. We read about their lives, gossip about their deeds and ogle their pictures. Perhaps it is admiration of glamour, fascination with royalty or learning their tricks of the trade.”

Just because someone is a creative genius, does not mean they know how to run the business-side of their lives. That’s especially true when it comes to estate planning, reports the Reno Gazette Journal as it affirms that “Yes, even celebrities make estate planning mistakes.” Here are the top four biggest mistakes:

No will. Biggest names: Prince, Aretha, Amy Winehouse and that is just a few. That means your affairs aren’t in order and your loved ones are not protected. Winehouse left an unwritten song about her finances, but she also left a $6.7 million estate. She had a brother and an ex-husband, but no direction as to who should get what. Without a will, her estate went through the probate process and was distributed to her parents. You need to have a will to name guardians of your minor children and ensure that your assets are distributed, according to your wishes.

Not setting up a trust. Celebs want their glamorous red-carpet photos all over Instagram and Facebook, but that doesn’t mean they want their personal finances to become public record. A will is a public document and a living trust keeps things private. There was more than one tragedy that followed Whitney Houston’s death. Her will named Bobbi Kristina Brown as her sole beneficiary. However, her daughter died three years later. Then her estate was tangled up with an IRS battle over the valuation of recording royalties. The bill from the IRS: $2.2 million in additional taxes. Her ex, Bobby Brown, may yet end up the heir of the Houston estate. That may not be what Whitney wanted.

A living trust keeps your estate private. It designates who is entitled to your assets, and how they are to receive them. It names trustees, and may provide tax benefits.

Not keeping the plan up to date. Life is all about change. Financial conditions, health, family relationships, divorce, marriage, birth, adoptions, estrangements: everything changes. The world-famous author Michael Crichton, author of Jurassic Park and many, many other best-sellers, was diagnosed with throat cancer, when his sixth wife was pregnant. His will was not updated. She had to sue to include the baby as an heir, and a daughter from a prior marriage opposed it. The judge ultimately ruled that the baby should inherit. However, simply updating his will would have taken care of everything, minus the resulting stress, cost and rancor.

Disabled before death. Estate planning is for the living also. You may be disabled and need help in managing your financial affairs. One out of 10 people over age 65 are diagnosed with Alzheimer’s disease, then at age 85, the rate skyrockets to one out of three. One celebrity whose dementia led to a nasty family rift was Etta James, the blues singer best known for the classic “At Last.” She had signed power of attorney over to a son from a prior marriage in 2008. Her husband of more than 40 years said that she was already suffering from dementia and was not competent to sign any legal documents. The son wanted to limit the amount of money the singer’s husband spent on her medical care. They finally settled, and her husband was named as conservator. However, he was given a limit of $350,000 for care for his wife. Etta James passed away shortly thereafter.

Celebrities are not the only ones who make enormous mistakes, when it comes to estate planning but they are the ones that we read about. The ultimate goal of an estate plan is to take care of families at many different asset levels and to protect and care for the living, as well as the deceased.

Reference: Reno Gazette Journal (Nov. 14, 2018) “Yes, even celebrities make estate planning mistakes”

Why a Will Is Just the Start of Retirement Planning

“But while we know about the Queen of Soul’s insistence on being paid in cash for her shows and Prince’s vast Paisley Park estate and other homes that were valued in the tens of millions, it appears that neither had the right people looking after their money. Both died without wills to direct their fortunes.”

Having access to the very best things in life, when your personal net worth is in excess of $5 million or $500 million, seems like a natural thing for such successful people. However, when high-profile celebrities, like Aretha or Prince, die without a will, we all get a front row seat to their inner financial lives.

Here’s another example: the actor James Gandolfini had a will, but never established a trust. When he died unexpectedly five years ago, his personal finances were an open book, says the Robb Report in the article “Rest in Wealth: The Ins and Outs of Estate Planning.”

We know that he left $200,000 to his assistant, $500,000 to his nieces and some of his friends were left $50,000, while others were left $200,000. He gave his son his clothing and jewelry, and his wife received the rest of his personal items.

That’s the sort of thing you probably wouldn’t want people to know, especially if you are a famous actor. If you were the recipient of any of those large gifts, and your name was public knowledge, you better believe that your phone will be buzzing with calls from people you haven’t even thought of in years.

Only 60% of Americans have a will. If you’ve got a collection of cars, an amazing wine cellar or a handful of expensive watches and no will, then the state is going to decide who will get what. It won’t matter what you wanted.

If you have minor children and no will, the court selects a guardian. The guardian doesn’t work for free. That money comes from your children’s inheritance. If, like Aretha, you have a special needs child, your inheritance could cause the child to lose any state-funded support, like Medicaid.

Even if you’re not a multi-million-dollar artist, you need a will.

 However, that’s just for starters. You also need a power of attorney and a health-care proxy. You may need a revocable trust. You may need a Special Needs Trust. There are many different tools available to protect you, protect your family, and transfer wealth efficiently (read: less taxes) across generations. It takes time to set up, and there are costs associated with having an estate plan created.

Once the plan is created, you have to tidy up the details too, like funding trusts, retitling assets, checking your named beneficiaries and other details.

Just consider the millions in taxes that Prince and Aretha’s heirs are going to pay.

Busy business owners need to decide whether they can make some free time to sit down with an estate planning attorney and create an estate plan. From a profit/loss perspective, it’s definitely worthwhile.

Reference: Robb Report (Nov. 10, 2018) “Rest in Wealth: The Ins and Outs of Estate Planning”

Probate Primer: good or bad?

“Each person must understand their own financial and family situation to determine the best estate planning approach for them.”

Let’s be clear—there is no one-size-fits-all estate plan or trust that will work for every family. Here’s one that you don’t read all that often—probate is not always a bad thing, according to the Rushville Republican’s article “Probing Into Probate.”

The first thing people think about when they hear the word probate is cost. There are costs associated with probate including court fees, personal representative fees, attorney fees and accounting fees. However, there are also fees associated with creating revocable trusts and trustee fees for administering trusts. The question should be, do you want to pay those fees now or pay them later?

Time is another reason why people don’t want assets going through probate. While that’s understandable, probate serves an important purpose. During the six to 12 months that it takes for the average estate to go through the process, creditors have a limited amount of time during which they can file any claim against the estate. If no probate estate is created because trusts were created, it’s possible that assets could be distributed. However, a creditor could then make a claim within the legal time period. What would happen? If the court deems the claim to be valid, the beneficiaries may have to return some of the assets they received under the trust or the trustee could be responsible for paying the claim.

Privacy is a key component of avoiding probate. If there’s anything you don’t want the public to know about your assets and how they are being distributed or your last wishes, then you do want to structure your estate plan to put all possible assets into vehicles that do not go through probate.

Emotions can run high in families, while estates are being settled. Not everyone will agree with how the estate is being handled. That can lead to fractures and estrangements. In some cases, families do better, when a judge is making the hard decisions, so they don’t have to fight among themselves.

Most people don’t pay federal estate taxes now that the exemption is roughly $11.2 million per person. However, your state may have an inheritance tax, estate tax or both.

Whether it’s a good thing to have your estate go through the probate process is a very individual decision. If you are in your 50s or older, in poor health or have a significant amount of assets, you may want to do some probate avoidance planning. An experienced estate planning attorney can help create a plan that will keep your life private, plan for your assets to be distributed according to your wishes and hopefully, keep your family members at peace with each other.

Reference: Rushville Republican (Aug. 28, 2018) “Probing Into Probate”

Prepare to Live a Long Life and Enjoy Every Bit of It!

“A long life is a great gift, but with the joys come some financial and legal challenges. The earlier you act to address them, the better off you and your heirs will be.”

Today’s adults are living longer. A non-smoking 65-year-old woman has a 50% chance of living until she’s 88—and her male counterpart could easily live to 85. It’s how life-expectancy works, according to the article in Kiplinger, “Are You Ready for Longevity? 4 Steps to Take Now,” The concept is the longer you live, the longer you are likely to live.

Given the happy fact that you should expect to live a long time, what can you do to protect yourself and your family? Here are four steps:

Have a plan for long-term plan. For a married couple, it’s likely that one of the two will end up in a nursing home. Plan for how you’ll manage to pay for that, long before you’ll need it. If you can purchase a long-term care insurance policy, while you are still healthy enough to qualify, you won’t need to use up all the household’s money to pay for the care. Long-term care insurance usually pays for both skilled nursing home care and in-home health care aides.

Traditional long-term care policies can be expensive. However, insurance companies have created hybrid policies that combine long-term care benefits with life insurance. If you don’t use the long-term benefits, your loved ones receive the life insurance proceeds upon your death. That takes a way the worry that you will pay premiums and get nothing back.

Plan for incapacity. You’ll need to have a medical advance directive, including a health care proxy and health care powers of attorney, so you can name another person to make your decisions when you are no longer able to do so. Do not assume that because you are married, your spouse will be legally able to make those decisions.

If you become incompetent and don’t have a medical advance directive in place, your family will need to go to court to get legal authority to make those decisions. This is a guardianship proceeding, which is expensive, time-consuming and stressful.

The same holds true for financial decisions. You’ll want a power of attorney, so someone else can sign on your behalf and access your accounts. This should be a trusted individual who will look out for you and your family.

If you die and assets are solely in your name, your family will need to go to court before they can access any of your assets.  This is the process known as probate. If you have an estate plan in place, your plan should include having some accounts that are POD or Payable on Death, so your loved ones are not left without assets. Your estate planning attorney will recommend the right planning tools, so that your family is protected.

Finally, do your tax planning as part of your estate plan. You likely won’t be paying federal estate tax.  However, chances are good that your state has an estate tax or an inheritance tax. An estate planning attorney will be able to minimize those taxes through techniques like credit shelter trusts, gifting during lifetime or moving to another state.

Reference: Kiplinger (August 13, 2018) “Are You Ready for Longevity? 4 Steps to Take Now”

Wills, Trusts, Estates: What’s What?

“First, why is a trust better than a will? Can I serve as the trustee? Where do my kids get a copy of the trust after I die?”

It is important to understand that every person’s situation is different.  Therefore, trusts aren’t necessarily “better” than wills. They are different types of estate planning tools with different features and are used to accomplish different things, says nwitimes.com in “Estate Planning: Distinct differences between wills and trusts.”

A will is a document that provides instructions regarding your final affairs: what to do with your property after death.  It also enables you to nominate the person you would choose to carry out your wishes—your executor—and if you have minor children, who you want to rear them—a guardian.

The will is not used for anything during your lifetime and becomes effective when you die. In most cases, it needs to be presented to a court. The presenting of the will to a court and the appointment of a personal representative is known as probate.

Trusts are different. A trust is a legal entity that can own property and provide certain benefits to the beneficiary. Think of a trust as a box in which you place certain assets. You don’t own the assets—but you do own the box.

In most cases, the creator of a revocable living trust is also the beneficiary and the trustee. There’s no difference in how you address property transactions, other than how you transact business. To sell a home, the deed is signed by the trustee, rather than the individual, because the trust owns the home. 

The biggest difference? Certain trusts are effective during the lifetime of the person. Some trusts only become active when the person passes: a testamentary trust. Most trusts have powers, once they are set up. The will only becomes active, when a person passes away.

People like trusts because they think that trusts will help them avoid the probate process.  However, trusts can also offer confidentiality and some protection, albeit limited, from creditors.

Trusts are not filed anywhere or recorded, so your children will probably only get a copy of the trust from you, while you are alive or from your estate planning attorney, who should maintain a copy.

An estate planning attorney will be able to discuss the different types of trusts, what functions they serve and whether your situation requires the use of a trust. With or without a trust, everyone should have a will, power of attorney and a healthcare directive. An estate planning attorney can make sure that you and your family have everything appropriate for your unique needs.

Reference: nwitimes.com (Jan 21, 2018) “Estate Planning: Distinct differences between wills and trusts”

What Is the Fascination with Anthony Bourdain’s Estate Plan?

“Ever since his untimely death, the press and the public hasn't been able to get enough of Anthony Bourdain. His name caused another commotion this week, when his will was probated in New York.”

There’s something about a rebel who lives life on his own terms that is like a magnet: it’s sometimes hard to turn away and that’s how many are responding to celebrity Anthony Bourdain’s passing, according to the Forbes’ article “How Anthony Bourdain’s Estate Plan Reflected the Two Most Important Parts of His Life.”

Reports that his net worth was only $1.2 million grabbed a lot of attention. It shouldn’t have surprised anyone, because Bourdain regularly said that until his 40s, he lived paycheck-to-paycheck. What’s really interesting from the estate planning perspective, is how he expressed his wishes in his will. The details became public because it was probated.

Bourdain made provisions for his only child, who will inherit the bulk of his wealth. He also seemed to have been influenced by the enormous amount of travel his career required. What is interesting is that he passed his frequent flyer miles to his estranged wife “to dispose of, in accordance to what she believes to be his wishes.”

Those who travel often and have large frequent flier miles, award points and perks, often overlook them as part of their estate plan. They are often valuable and should be addressed in estate planning.

 However, passing along airline points is not as easy as filling out a beneficiary form. Each airline has their own policies, so you may have to fill out a form for each one. Loyalty programs are basically contracts with a company and you’ll need to read the fine print, since not all airlines allow their points to be assigned. The selection of beneficiaries also may be limited by the airline.

Bourdain’s very public profile makes it unlikely any airline would refuse to honor his request to transfer those points. Because he carefully documented his desire to leave his frequent flier miles to a specific beneficiary, it’s even more likely his points will transfer without too much fuss.

Bourdain is proof that even rebels make sure to put estate plans in place.

His will reflects his personality of authenticity and relentless curiously about the world around him. The final message he leaves us with, is to take care of those we love, even as we travel the globe.

Forbes (July 6, 2018) , “How Anthony Bourdain’s Estate Plan Reflected The Two Most Important Parts of His Life.”

Do Not Give Your Children Everything Now

Some older people like to give everything to their children, while the parents are still alive. This is usually not a very good idea.

Many parents know that when they pass away without an estate plan, everything they own will likely go to their children. That is likely to be what the parent wants to happen anyway. However, before the children inherit the estate, it must to go through the probate process. That can be expensive and time-consuming in many states.

This leads some parents to give everything to their children, while the parents are still alive, as the Times Herald-Record discusses in "Best not to transfer assets to children while parent still alive."

The most obvious problem with doing something like this, is that when ownership of something is transferred, the new owner has full legal rights to control that something. Once it becomes the child's property, the child gets to make all the decisions concerning that property and they do not have to follow the wishes of the parent. It also means that if the child owes money to someone, the property can be subject to the claims of the creditor. Finally, there are all kinds of potential tax concerns, when giving property to another person.

You do not need to give everything away now to avoid probate. You can go to an estate planning attorney to get a trust, so your estate will avoid probate and all the drawbacks of transferring ownership, while you are alive.

Reference: Times Herald-Record (May 10, 2018) "Best not to transfer assets to children while parent still alive."

Mistaken Beliefs about Wills and Trusts

While it is not possible to dispel everything that people mistakenly believe about wills and trusts, a few things come up often enough that it is important to make sure you do not hold these mistaken beliefs.

It is not clear where some beliefs about estate planning get started, let alone how they continue to spread despite not being true. There are certain myths people believe that just continue to pass from one person to another, like wildfire. Perhaps it is the Internet where things that are not true can exist and be found over and over again for years.

In any event, some basic estate planning myths are so common that it is worth taking some time to correct them as TC Palm discusses in "Common misconceptions about wills and trusts."

These myths include:

·         If you have created a will, it is likely that your family will still need to go through probate court after you pass away. A will does not protect your estate from probate, as many people mistakenly believe. A fully funded revocable living trust is the most appropriate estate planning tool for probate avoidance.

·         Even if you do not have enough assets for your estate to pay the federal estate tax, an estate plan is still needed. Many people think that estate planning is only for the wealthy. It is not.

·         People think they should not put property into a revocable trust because that will limit what they can do with the property. This is not true either. If the trust is written properly, it can be amended and revoked easily by you as its creator.

·         Another common mistaken belief concerns the administration of a revocable living trust ,while its creator is alive and managing it. Many believe that by creating a revocable living trust, they will need to file a second income tax return for the trust. This is also false.

Reference: TC Palm (May 1, 2018) "Common misconceptions about wills and trusts."

Joint Tenancy Is a Bad Idea

Adding a child as the joint tenant of your home to avoid probate is always a very bad idea.

Some bad ideas in estate planning never seem to go away. No matter how many times estate planning attorneys try to tell people that the ideas are bad, people continue to make the same mistakes.

One common mistake is when people try to do their own estate planning to get around probate. For example, a widow may add an adult child as a joint tenant on the deed to her home. While it is true that if all goes according to plan, the child will inherit the house after his mother passes away without the need for probate. This approach can be a bad idea.

Why? Normally, the trouble comes because the child has a creditor who can attach the home to pay off the child’s debts.  However, there are other potential issues, as was recently discussed in the Napa Valley Register in "Can new wife inherit home?"

In this case, a married couple added their daughter to the deed as a joint tenant. The wife passed away, which made the father and daughter co-owners of the home. The father then remarried to a much younger woman.

The daughter refused to give up ownership and allow for a new deed allowing the new wife to inherit the home. When the father passes away, the daughter will inherit the home and be free to throw the new wife out if she wants.

Instead of looking for ways to avoid probate on your own, go to an estate planning attorney for assistance. The attorney can give you better ways to accomplish your goals and help you avoid these types of problems.

Reference: Napa Valley Register (April 5, 2018) "Can new wife inherit home?"