Let’s talk about probate. What is it and how does it work?
Any property you hold only in your name when you die is subject to a legal process called probate. When a person dies holding property in their sole name, the only way to transfer that property to a loved one is to go through the probate process.
In Maryland, the average length of time it takes to go through the probate process is between 8-12 months. Filings are made by a Personal Representative (also called Executor) who is usually appointed by name in the will. This person will account for the assets and liabilities of the deceased and distribute assets to loved ones according to the terms of the will.
In our area, we are well-served by our elected Registers of Wills. The staff at the Register of Wills’ office is very helpful and you should contact them for guidance. And, don’t forget to Retcheck out the forms and guidelines available to you for free on the Register of Wills websites.
In Maryland, court costs for probate are not severe; however, the fees for legal services to prepare the court filings may be substantial depending on the size of the estate. There is a statutory maximum fee that can be charged that is 3.6% of the assets of the estate over $20,000, plus $1,800. Probate of an estate worth $500,000 could cost the estate approximately $19,000 in legal or personal representative fees.
Some people do not like the idea of probate administration. If you own property in more than one state, you face a probate administration in those additional states. Many people object to the 8 to 12 month time it takes to file the appropriate forms before an estate can be closed in the probate process. The probate process can also take an emotional toll on loved ones. And, finally, probate filings are public records and many people want to keep their estates private.
There is a way to avoid probate. Today, many people use a Living Trust to avoid probate. Since probate only applies to property you hold in your sole name, and you create a family trust to hold title to all your property, so when you die there is no probate.
How do you control the trust? The trust is called a Living Trust or a revocable trust, because you can revoke or amend it at any time. You and your spouse are the initial trustees of your own family trust. You appoint your loved ones as the successor trustees.
If one of you dies, your spouse becomes the sole trustee. When both you and your spouse die, your successor trustees take over the trust immediately on death. There is no waiting 8 to 12 months, no legal or PR fees when you die, and privacy for your records (trusts are private, not public documents). Trusts were previously available only to the very wealthy, but are now priced at affordable levels for the middle class.
Some of the advantages of a Living Trust are as follows:
• The trustees retain complete control of their assets
• With a married couple, husband and wife are the initial grantors (depositing assets into the trust) as well as the initial trustees (managing the trust) and initial beneficiaries (benefiting from the trust)
• The initial grantors appoint the successor trustees (children or other beneficiaries).
• Upon the death of husband or wife, the surviving spouse has control of all of the assets in the trust immediately
• A trust is an excellent tool for taking care of heirs who lack investment experience or have mental impairments
• A Trust can protect assets from recipients who are spendthrifts
• The trust is private, not public and therefore less susceptible to lawsuit
• The trust can be amended or revoked at any time
• The trust manages each spouse’s share of the assets
• No change in income taxes (tax neutral)
Living Trusts must be properly funded and kept up to date, which means regular updates to your trust in the case of material life events. There is no use going to the trouble of setting up a living trust if you then purchase property in your sole name and that property is not inside the trust.
Finally, you need a power of attorney and a living will. The power of attorney is one of the most important protections you can give to yourself when you are still alive but unable to care for yourself. You appoint a loved one or trusted adviser as your power of attorney — for medical and financial care. You also appoint them as your guardian in case you are disabled and in need of institutional care. And, so that you do not pace the burden on your loved ones to “pull the plug” on you, you decide for your self what you want in a document called a “living will.”
About the Author: Lyn Striegel is an attorney in private practice in Chesapeake Beach and Annapolis. Lyn has over thirty years experience in the fields of estate and financial planning and is the author of “Live Secure: Estate and Financial Planning for Women and the Men Who Love Them (2011 ed.).” Nothing in this article constitutes specific legal or financial advice and readers are advised to consult their own counsel.