Types of estate plans are not created equal. There are benefits and disadvantages to the kind of planning. There is no one size fits all. The best plans are customized to the person or family. The estate planner needs to understand the family unit as a whole, how the estate currently functions, and how the estate should function based on certain contingencies.
1. “The title company says I cannot sell my dad’s old house until I open a probate. It is just a tiny old house, is probate really necessary?”
Answer: Deceased people can legally own things, they just can’t sell them for obvious reasons. Probate is the court-based process to transfer legal title from a deceased to their lawful successors.Probate sometimes is not required for certain small estates. If the estate qualifies, the affidavit may be more efficient than a regular probate to transfer title, but the affidavit procedure also has its own risks.
Practical Example: Joe dies without doing any estate planning. Johnny acquires Joe’s house (his only brother) using the affidavit procedure, and then sells the house to his friend Larry the Old House Flipper. Johnny takes his wife on a dream vacation with the money from the sale. A year later, Sally, Joe’s wife from before the war whom he never legally divorced, comes to town looking for Joe to sign a decree of divorce because she wants to marry someone else. Sally instead finds out that Joe died and owned a house. Johnny vaguely remembered Sally, but it has been several decades since she and Joe broke up. Sally sues to establish her ownership of Joe’s house, wins, and pursues Johnny for the value of the house. Johnny is liable to Sally for the value of the house.
2. “My mother winters with us here in Arizona, but she owns a condo in Washington, a time share in Florida, and she recently inherited oil and mining rights interest with her siblings in Texas. She is getting older and we know she needs a will, how much will that cost?”
Answer: Foreign probate proceedings can be very expensive.Depending on the probate rules of the jurisdiction where the real estate lies, processing the property transfer in probate usually requires local representation in each jurisdiction. Resolving potential income, property, and estate taxes due further complicates the process and adds expense.
Practical Example: A will-based plan for the above described estate is likely to demand a five digit price tag. Her child opens probate of the will in Arizona, registers the Arizona probate in Washington through local counsel, obtains an affidavit of small estate for the time share in Florida also through local counsel, and after registering the probate in Texas depending on value, perhaps a buyout for the rights from those siblings, if possible. Retaining local counsel in the identified states to prepare deeds to a single living trust instead of filing probates is cheaper in the long run. The tax issues will need to be addressed separately.
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Practice Tip: It is easy for clients to take for granted how complex their personal affairs are. If a key player is removed from the game, what usually happens? Estates are no different. Life insurance funds help, but money only goes far and it is only as effective as the person directing the grand plan. Throwing money at a bad plan usually amplifies harm. Complex life situations or complex asset structure dictate a detailed planning need.
*Watch for big “life”events. Birth, marriage, death, divorce&disability, trigger these kinds of questions.
*The information provided in this article is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, does not create an attorney-client relationship, and you should not act upon it without seeking independent legal counsel.