Avoid Families Torn Apart
Regardless of the amount of the property left to their heirs, parents don't want to leave a legacy of problems, bills, and families torn apart. Unfortunately we often see families ripped apart because of poor planning and communication. Many think they will resolve this issue with a will or just talking to their children about their wishes, but it may not be enough. Proper planning now can avoid many of these issues.
When I meet with clients to talk about their estate planning, there are a lot of things to discuss. How will the estate be divided? Isn't a will enough to convey their wishes?
If they have life insurance, who will handle the money for the benefit of their family? If they fail to plan properly for minor children then the court will set up a conservatorship. Someone you don’t know will handle the investments and distributions. Court approved investments are basically CDs and other government insured investments. Court-approved distributions are pretty narrow in scope, which may or may not be a good thing for your children. Since you won’t know who is handling the money, you won’t know if you can trust their judgment.
These issues can, of course, be addressed in either a will or a trust. Many people think that if they have a will, they’ll avoid probate. That couldn’t be further from the truth. With a will, all assets in the decedent’s name alone (not jointly or with a beneficiary designation) will have to be probated.
So, the question is whether it’s important to avoid probate? I usually give three reasons why clients want to avoid probate. The first is a loss of privacy. When you open a probate estate, you have to file the will. When the estate is opened, notices (including the will) are sent to potential heirs and beneficiaries. I have literally had people come out of the backwoods of Minnesota claiming that Aunt Martha meant to leave them half of her estate. We had trouble finding the guy in the first place, so there was no way he had been in touch with Aunt Martha. These notices can invite will contests.
Also, when you open a probate estate, the court will publish a notice in “a newspaper of general circulation.” That’s when the cards and letters start coming. People wanting to buy the house or invest the money.
Within 30 days after the estate is opened, the personal representative has to file an inventory of everything the decedent owned. Although there are some protections, probate is basically a public record. A persistent snoop can probably get to see the file. That is not helpful and can create problems for heirs.
Another reason why people want to avoid probate is the cost. Fees vary from state to state. Some states leave it up to the local judges to decide what is a “fair and reasonable” fee. If you’re a friend of the judge, those fees can be pretty high. In some states (such as Missouri), the fees are a percentage of the estate. As an example, if we assume a person owns a house, has a little IRA, and a little life insurance (all of which are probatable in this example), it’s easy to have an estate worth $500,000 or more. Out of that pot of money, by statute Missouri allows the personal representative a fee of approximately $14,000. That same amount also goes to the attorney. Probate estates can be very profitable for lawyers.
The last reason to avoid probate is time. Once a person dies, his or her assets are frozen until an estate is opened. No bills can be paid, including the mortgage or utilities. Usually family kicks in and gets reimbursed, but that’s kind of an imposition. Could your heirs afford to pay for your mortgage, funeral and house maintenance for over 6 months? And what if you have a business? That could kill your business.
Once the estate is opened, in Missouri as in all states, it has to stay open for a minimum period of time (the “claims period’) (six months in Missouri) for any creditors to file claims. After the claims period, the personal representative has to file an accounting and a proposed order of distribution. Further delay! And if you didn’t plan properly and authorize independent administration, the only distributions that can be made are those that are approved by the court. Most all of this can be avoided with a trust.
As you can see, there are plenty of reasons to plan your estate and consider a trust. Some surveys find that over 60% of the population has no estate plan at all. As some clients have said, “Why should I care? I’ll be dead!”
Avoid the costs and pain for your children, contact us today at (314) 241-3963 to see if it makes sense for you to avoid the problems and costs associated with wills and probate.