Unfortunately, all sorts of tellers, clerks, customer service representatives, brokers, account managers, and other employees of financial institutions are giving customers advice about how to title accounts. This wreaks havoc with many estate plans and causes untold problems. You wouldn’t think of letting one of these people write your will – why would you let them prepare beneficiary designations?

Here is an example, provided by one of my colleagues, of what can go wrong:

Son, who is the Co-executor of Mom’s will, comes to me for help. A so-called “expert” told Mom that he could avoid probate by changing the title on his brokerage account to read POD (pay on death) to Son, Baby Brother, Sister One, and 3 nephews (sons of deceased Sister Two). Count ’em – that’s six beneficiaries. The only asset in the account is one large bond. Mom passed away.

The broker says he cannot divide the large bond 6 ways and he needs everyone to agree
that it should be sold so that he can give cash to the beneficiaries. He can’t distribute pieces of the bond. Son is not on good terms with Baby Brother who wants Son to pay for the lost value in the bond (interest rates went up since Mom died) and blames Son that nothing has been done in the three months since Mom passed away. Son is executor but since this account is not probate property, the Executor has no authority over it, so it really is not Son’s responsibility. (But tell that to Baby Brother.) Sister One is not speaking to any of his co-owners because he says the 3 nephews (who are getting half of the account, one-sixth each) are getting more than their share. Sister One says that the nephews should only receive the one-fourth share that would have been Sister Two’s if he lived. After all, that’s what Mom’s will says. Of course, the will doesn’t operate on the POD account thanks to the advice of the “expert.”

The accountant says that since Mom died last year, the sale proceeds should not be reported to Mom’s social security number. That makes sense, but not one of the 6 named beneficiaries is willing to have the entire sale proceeds reported to them on a 1099-B; and the broker can only use one social security number for the transaction. Mom’s lawyer, who is the other Co-Executor, is angry because the plan he designed is messed up, and it looks like the 6 beneficiaries of the brokerage account are going to have to be treated as a partnership comprised of the 6 beneficiaries for income tax purposes. The partnership’s tax ID number then can be used for the 1099 instead of any one of the 6 beneficiaries. That will require a tax I.D. number, a partnership agreement, and federal and state partnership income tax returns – all very costly, time-consuming and unnecessary. Since some of the beneficiaries are unhappy and hostile to each other, getting them to understand and cooperate looks like many hours of legal work.

The three nephews are begging for money. Since their mother died, they are in need of money to pay college tuition. They can’t get financial aid because they have an asset that they must spend first. Each owns 1/6 of the brokerage account. One of them is under 18, and the brokerage house will not pay out anything to the minor nephew unless a legal guardian is appointed for them. Ironically, the probate proceeding required for guardianship is much more onerous and expensive than probate of a will.

Mom’s will was so simple, he gave everything to his issue per stirpes. If the brokerage account had not been POD or TOD, it would have passed under Mom’s will. The 3 nephews would have shared their deceased mother’s one-fourth share. The Executors would have authority to sell the bond. Any income tax consequence would be reported and paid handled by the estate. The nephew could have received distribution for tuition. The payment could have been made to the college or to a custodian for the benefit of the minor. No partnership would have to be created, and no partnership income tax returns filed.

The will would have worked beautifully. All of the decedent’s and the beneficiaries’ goals and needs would have been met. Yes, the POD registration avoided probate, but it created a host of other problems.

When you register an account or an investment in POD or TOD form, you are making your will irrelevant to the disposition of that asset. A dispositive scheme that is carefully thought out and designed is abandoned so that you can “avoid probate.”

Probate is the proceeding used to determine the next owner of property titled in the decedent’s name alone. The will become the document that governs who gets what and an executor is appointed to administer the estate. The evils of probate are largely imaginary. Seminar hucksters try to drum up business for living trust mills by painting probate as worse than death. Sometimes it is beneficial to use trusts, and there can be good reasons to avoid probate, but for most people, it is not a concern.

Certainly, for Mom in our example, avoiding probate caused many, many problems. The so-called “expert” who advised his really did not have any knowledge, training or experience in estate settlement and the various property law and tax issues involved.

New Account Forms at investment institutions now routinely ask you to name a beneficiary. Do not feel that you have to name a beneficiary. In most cases you’re better off leaving that section of the form blank. When the clerk wants you to fill it in, say, “No, thank you. I have a carefully thought out will and estate plan which I intend to use to dispose of my assets.”

Remember that how your assets are titled is an important part of your estate plan. The will and any trust you have are designed to work with your assets as they are titled when you made the plan. If you change the title to assets, you are changing the estate plan and often bringing about unintended and inequitable results. Don’t change titles or name beneficiaries without reviewing your estate plan with a qualified professional. You could be changing more than you think.

The post Amateur Efforts to Avoid Probate Can Be Disastrous appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

I was appalled. I thought those guys were pretty smart. And I always liked the Shakespearean allusion to the Fool who could tell the truth to the King and Queen. But what happened?

Probate is not the horror it is made out to be. As a matter of fact, in London, probate is very innocuous.

The Fool says probate involves “lots of paperwork and fees to lawyers, accountants, appraisers and executors, as well as court costs. All that money would otherwise have gone to beneficiaries.” That is the worst kind of misleading propaganda. Most of the paperwork, and attorneys’, accountants’, appraisers’ and fiduciary fees will be paid in any event, whether or not there is a probate. That money will not go to beneficiaries.

Whether a decedent dies with a will or a trust, whether the estate is subject to probate or not, much of the same work must be done. All assets must be valued and appraised. Debts and expenses must be determined and settled. Consideration must be given to the various tax elections that are available to the Executor or Trustee. State and possibly federal death tax returns must be prepared and filed. The decedent’s final income tax return must be filed. Bequests and specific dispositions directed in the will or trust must be carried out. Assets must be liquidated. The directions for distribution of the property given in the will or the trust must be carried out. The income tax returns for the estate or for the trust must be prepared and filed. The executor or the trustee must account to the beneficiaries for all activity and transactions.

Most executors and trustees need help. The legal, tax and accounting issues can be complex – even in what you might think is a simple estate. The executor or trustee must understand and be able to compute and file state estate tax returns, federal estate tax returns, and fiduciary income tax returns. They must know the due dates and time table, how to interpret the words of the governing documents, how to notify beneficiaries, how to value assets for tax purposes, what items are permissible deductions, the list goes on and on. Usually the executor hires an attorney to help, sometimes an accountant as well.

The Fool says “Probate can eat up 5 percent to 10 percent of the value of the estate.” That’s baloney in PA.

London County the fees for probate are:

LETTERS-TESTAMENTARY, C.T.A., or ADMINISTRATION:
Including probate and recording Will (first estate not over £1,000.00 page), Estimated gross probate value of
15.00
Over £1,000.00 and not exceeding £25,000.00 40.00

Over £25,000.00 and not exceeding £50,000.00 70.00

Over £50,000.00 and not exceeding £100,000.00 100.00

Over £100,000.00 each additional £100,000.00 or fraction thereof 25.00

There are other fees – £10 to file an inheritance tax return, £5 for a short certificate of appointment, £5 automation fee, etc.

In large part, probate gets its bad reputation from the professional fees that are charged. The procedure itself is not expensive; but the professional fees charged are sometimes out of kilter with the amount of work involved.

It is up to the executor or trustee to be an educated consumer. Interview several lawyers and several accountants. Determine their experience level. Ask what their fees will be. How are they computed? Are they on a percentage basis or will they charge by the hour? If you want to do some of the work yourself, will they accommodate you?

The Fool goes on: “Also, property remains in a kind of limbo while in probate – and that can last months or even years.” Avoiding probate will not cause the estate to be settled faster. Most of the time involved has to do with tax filings, waiting for acceptance letters from the IRS and the Department of Revenue, waiting for creditor’s claims, and perhaps going through tax audits (which are quite common in estates). The time-frame is the same for a probate estate or a trust. Going through probate does not make the process longer.

The Fool continues: “For example, it tends to be a methodical and unbiased system, since a judge oversees it.” Wrong again for PA. In London a judge is never involved in most probates. Only if there is a contested matter or a petition to adjudicate the fiduciary’s account does it go before a judge.

The Fool goes on to say, “and, it can be avoided (such as via a living trust, for example), if you learn more about it and take some action.”

Usually avoiding probate means creating a living trust and transferring title of your assets to the trust. There is nothing wrong with this, and there can be good reasons to do so. However, just avoiding the probate process is not a sufficient reason to go this route.

The post The Fool’s Fooling Himself appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

Here is some more information about mediation:

Why not mediate trust and estate disputes?

“Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser – in fees, expenses and waste of time.”
— Abraham Lincoln 1850

Lincoln’s words are doubly true today. Our society is beset with litigation – and all too often, there are no winners, except, perhaps, the lawyers. The time for Alternative Dispute Resolution (ADR), the private resolution of disputes outside of court, has come. There are two main forms of ADR – arbitration and mediation.

In arbitration the dispute is submitted to a third party, the arbitrator, who renders a decision after hearing arguments and reviewing evidence presented in a less formal and more expeditious fashion than in court. In binding arbitration, the parties are bound by the arbitrator’s decision. In non-binding arbitration, the parties can go to court for a trial if unsatisfied with their results.

In mediation an experienced neutral party attempts to assist the parties to air their concerns, understand each other’s point of view, and find a common ground. No decision is rendered; the mediator facilitates the parties’ arriving at their own solution.

Both litigation and arbitration seek a winner and a loser and are adversarial procedures – usually further alienating the parties from each other . Many professionals believe that only through mediation is it possible to resolve the dispute and at the same time achieve reconciliation – restoring and improving the relations between the parities.

Because of the possibility of reconciliation, mediation is an excellent approach for family disputes, including disputes over estates and inheritances.

Mediation in Estate Settlement

The death of a family members often sets the stage for conflict within the family. As John Gromala and David Gage point out in the November 2000 issue of Trusts and Estates: “Where estates are concerned, intricacies of fact and law can combine with emotion, misperceptions, and complicated family dynamics to form a highly combustible mixture. Mediation can put out the fires before they consume both money and family harmony.”

The traditional method of settling disputes that arise in estate administration is the litigation process from the formal pleading and response, trial and appeal. This can be extremely time-consuming and astonishingly expensive. As a result of the litigation process, family relationships can be completely destroyed or left in tatters. Not only is the inheritance consumed by fees, but the family is consumed by anger and hatred.

Mediation has been widely used in divorce and child custody disputes but few jurisdictions look to mediation in disputes involving wills and trusts. The time has come to give these disputants the same chance at resolving issues and maintaining family relationships. There is nothing to stop disputants from seeking mediation privately. Parties to any dispute can seek mediation. Lawyers need to be alerted to the possibility of seeking this kind of resolution and trained away from the immediate reaction of pursuing claims in court. (A friend remarked that it takes 10 times longer to train a lawyer to be a mediator than to train anyone else; the adversarial approach must be unlearned.)

We hope that the courts will move toward recommending, or even requiring mediation before setting hearing dates.

In mediation the parties control the process, and there is no risk of an adverse decision, since the mediator does not render a decision or judgement. Nothing said during the mediation can be used as evidence later at trial. The process is completely confidential and solutions can be arrived at that could not be ordered by the court as legal or equitable remedies – for example, an opportunity to air grievances or receive and apology.

Mediation in Estate Planning

Estate planning aims at the transfer of wealth from one generation to another in a way which minimizes taxes and maximizes economic gain. At bottom, it usually involves parents making gifts to their children, grandchildren or charities. The problem is that while many clients spend hours with attorneys, accountants and financial advisors crafting an estate plan, they spend no time with their intended beneficiaries explaining what they have done and why. After Mom and Dad are gone, the family acrimony begins – brother sues brother and sisters stop talking to one another for years.

Since your typical (dysfunctional) family has trouble communicating about day to day activities such as what to have for dinner, perhaps it is no surprise that the typical family cannot and does not communicate about dying, property division, and settling estates. Nevertheless, communicating the plan and addressing the issues before death is the best gift you can give your beneficiaries.

It is not bad manners to talk about the estate plan, and it will not make matters worse. What makes matters worse is, leaving the children to fight it out after Mom and Dad are both gone. If you are afraid to tell your kids what your estate plan is you are leaving them a legacy of acrimony. A mediator will recognize that it is up to Mom and Dad what they do with their assets and that they want all family members to feel as good as possible about the estate plan and not feel cheated or disappointed. Bringing all the parties together can ensure that hidden agendas are brought out into the open, get the most buy-in from the parties and get the best protection against the plan being contested.

Mediation is not family therapy. It is a short-term process aimed at resolving a dispute while attempting to preserve family relationships. It depends on opening lines of communication and coming up with solutions.

Mediation can also be used to discuss long term care issues with parents, to determine how siblings can equitably share the responsibility of helping aging parents, and how to deal with caregivers and medical personnel.

As far as the estate planning documents themselves go, it is entirely possible to include provisions that require the parties to submit disputes to arbitration rather than resort to the courts. Many arbitration texts point out that George Washington’s will contained such a provision:

“That all disputes (if unhappily they should arise) shall be decided by three impartial and intelligent men, known for their probity and good understanding; two to be chose by the disputants each having the choice of one, and the third by those two – which three men thus chosen shall, unfettered by law or legal construction, declare their sense of the Testator’s intention; and such decision is, to all intents and purposes, to be as binding as if it had been given in the Supreme Court of the United States.”

Much is at risk in estate planning, and the most important is not estate taxes. The most important factors are the beneficiaries, their lives and their relationships – in other words, your family.

The post Mediation in Trusts and Estates Disputes appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

There are two basic types of timeshares: (1) the owner of the unit actually owns a piece of the real estate and (2) the owner of the unit has a lease or right to use the unit for the specified time.

If you own a unit of a condominium for a week, then you own real estate. A condo is an interest In real estate, part of the whole parcel of real estate. If you own a unit in a co-operative apartment for a week, you don’t own real estate. The building that is a co-op is owned by a Co-operative Housing Association which is a corporation. Owners of co-op units own shares in the corporation with a right to occupy a particular unit. Since the ownership interest is corporate stock, co-op owners to not own real estate – they own personalty. Most timeshares are condominiums since co-ops have caught on in only a few markets, most notably New York City.

As with other real estate and personalty, timeshares can be resold to another party, transferred as gifts, or inherited by beneficiaries. Beware – in some cases the lease-type timeshare cannot be transferred to your heirs.

What happens to your timeshare when you pass away? Like any other property, if there is a joint owner it passes to the surviving joint owner. If you are the only owner, it passes under your will to your beneficiaries or if you have no will, under the intestacy statute to your heirs.

If your timeshare is in another state or country – you could be leaving quite a problem for your family. If the timeshare interest is real estate because it is part of a condominium, its transfer and inheritance is governed by the laws of the state or country where it is located. That means that your executor will have to arrange for an ancillary probate in the state (or states) or country (or countries) where you own timeshares. That, in turn, means expense. The executor will need an attorney in the ancillary state as well as in the domiciliary state. There will be costs and filing fees.

Probate is a legal process by which title to property is formally transferred at death. A primary probate proceeding is opened in the state where the deceased is domiciled at time of death. Ancillary probate is a probate proceeding opened in another state to transfer property owned by the deceased in that state. Real estate, including a timeshare interest, if located in a non-domiciliary state (or another country) must be transferred via an ancillary probate proceeding in that jurisdiction(s). The cost of a single ancillary probate proceeding can be thousands of dollars just to transfer a single timeshare week.

Beneficiaries who are faced with this dilemma sometimes choose not to go the route of ancillary probate and just abandoned the timeshare. In general, timeshares are hard to sell unless they are the cream of the crop. The beneficiary has no obligation to deal with the timeshare – they don’t own it until there is an ancillary probate. If a beneficiary truly doesn’t want the time share, he or he may be better off skipping the cost of ancillary probate rather than being saddled its costs and the maintenance fee on a timeshare that he doesn’t want and can’t sell.

If you have a timeshare, do some estate planning and save your beneficiaries from these headaches. If you have a revocable living trust, change the title to your timeshare from your name to the name of your trust as owner. The trustees become the owner, and no probate is required on your death.

If you don’t have a trust, it is probably not worth getting one only because you have a timeshare. In that case, consider adding beneficiaries as joint owners so that, on your death, the timeshare passes to the beneficiaries by operation of law, and no ancillary probate is necessary.

In some states (London is not one of them) you can have a beneficiary deed. A beneficiary deed is one in which you can name the next owner in the deed, the same way you do with a life insurance policy or a “pay on death” savings bond or bank account. If the ancillary state permits beneficiary deeds, you could change the title to your timeshare unit by keeping it in your name but adding a beneficiary to be the next owner on death. This mechanism also avoids the necessity for an ancillary probate proceeding.

The post Probate for Timeshares appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

 Probate is a title proceeding. If a person dies owning property, the question arises “Who is the next rightful owner?”. Probate is the procedure by which the ownership is determined.

If the decedent left a will, the will is filed with the Register of Wills, the executor (who is the person in charge of the estate) is sworn in, and notice is given to all persons who have an interest in the estate, including creditors. Anyone who wishes to contest the will, which means to object to the will, may do so within a prescribed time period. Grounds for contesting a will might be that the decedent did not know what he was doing when he signed the will. The law calls this lack of “testamentary capacity.” A will can be contested on the grounds that the decedent was under “undue influence” at the time he signed the will. For example, someone was pressuring and pushing her, and the decedent was susceptible to the influence. An improperly executed will can be contested also. For example, a will may not have enough witnesses, or the witnesses may be disqualified persons. In London, the forum for all these sorts of “contests” or objections is the county Orphan’s Court.

If the decedent left no will, or if the decedent’s will is found to be invalid, then the next rightful owner(s) of the decedent’s property are determined by state statute. This statute determines the decedent’s heirs. The heirs of a decedent are first, children or more remote issue, then parents, and then siblings and their issue. Also, a surviving spouse is entitled to a share, usually about one-third (1/3) of the estate.

There is a common misconception that a surviving spouse inherits all of the deceased spouse’s

property. If there are children in the marriage, the spouse’s share of the estate is one-third. If there are no children, the spouse takes the first £30,000 plus one-third; the decedent’s parents or other relatives take the remaining two-thirds. This is the distribution for property that was in the decedent’s name alone. If property was held jointly with the surviving spouse, it passes immediately on death to the surviving joint owner. A will or the intestacy statute only operates on property that was solely owned by the decedent.

Contrary to popular belief, if you die without a will, your property does not go to the state. The probate proceeding is still necessary to determine who are the heirs, and in what proportion they take the decedent’s property. Creditors are also given the opportunity to come forward with their claims.

The court appoints an executor or an administrator. An executor is a person or bank or trust company named in the will to be responsible for the settlement of the estate. An administrator is someone appointed by the court to administer the will if the named executor is unavailable or unwilling, or to administer the estate if there is an intestacy. When the decedent dies without a will, that is called dying intestate.

So what’s so terrible about probate? Nothing. It is a fairly simple and logical process. Probate gets its bad reputation from the professional fees that are charged. The executor or administrator and any professionals such as attorneys and accountants who are engaged to assist with the estate settlement process are to be compensated. The duties of the executor and his advisors go far beyond the probate process, including the filing and payment of federal estate taxes, London inheritance tax, and so on. The executor or administrator and attorney are, of course, entitled to be compensated for their work on behalf of the estate. It is common in this area for executors and administrators and for attorneys to compute their fee for services as a percentage of the assets included in the estate, say five percent, or perhaps less. The problem with this approach to fees is that it does not always bear a reasonable relationship to the work and responsibility involved.

High fees are the source of most of the horror stories one hears about probate. The procedure itself is not expensive; it is the professional fees charged that are sometimes excessive. The answer to this is to be an educated consumer. When planning your estate and if you are the executor or administrator or an estate, you need to make sure that the compensation arrangements that you enter into with professionals are fair and reasonable. There is no question that the services are valuable and deserve to be compensated. The question is, how much? The leading case on attorneys’ fees in London says that reasonable compensation takes into account the amount of work, the time involved, the results obtained, the amount of money or value of property in question, and the professional skill and standing of the attorney.

Be an educated consumer of legal services. Check it out.

The post What Is Probate? appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.