Without a complete estate plan, even surviving spouses often have to go through long or short versions of probate to get full control of their family’s assets. In the meantime, terrible hardships can ensue.
Wait! If your spouse dies—don’t you automatically get control of his or her assets, even if no will was signed?
The answer is maybe yes, and maybe no.
In most states, “title controls.” This means that if your name is jointly included on the title of the asset, whether a house or a bank account, and the title was structured for joint tenancy with rights of survivorship, the surviving joint tenant will get the account or property. In other words, you, as the survivor, will indeed be given instant control of that asset.
Or not. It depends. Even if all your assets are held as joint tenancy with right of survivorship, what happens when the last man (or woman) dies?
Sometimes joint tenancy and joint ownership have their own pitfalls. Suppose, for example, your spouse has a business bank account that he shares with a business partner. Your spouse dies, it might be the partner—not you—who gets control of that account. You may be on the sidelines yelling, “Hey, that was marital property, I’m entitled to my half of that account.” But absent a clear estate plan, you may have to file a probate petition and start a battle that may or may not let you gain control of the disputed assets. The matter will quickly become complicated, and it’s likely that lawyers will get involved.
A class of assets which generally avoid probate are: Transfer on Death (TOD), or Payable on Death (POD) accounts. You will generally see TOD on securities and POD on bank accounts.
If some of Bob Sr.’s money resided in a POD bank account, and he named Bob Jr. as the POD beneficiary to the account, then indeed, Bob Jr. would merely have to show up at that bank with a photo ID and a death certificate in order to gain control of the account. Such accounts do not need to go through probate. In fact, they are not even covered by a will.
This may simplify things, or it may create unintended problems for multiple heirs.
If you are going through life creating some assets that are
POD to multiple names, some that are jointly held, some that are inside a living trust (see below), and others that you simply fail to track properly, then you are creating more and more issues for the next generation.
Those issues will have a name: probate.
SOMETIMES, PROBATE IS A NIGHTMARE
Bob Jr. from our previous post had it easy.
I have plenty of clients for whom the failure to do proper estate planning has led to a true nightmare. Take a couple I will call Katerina and Ivan, immigrants from the Ukraine who have lived much of their adult lives in California. They’ve become citizens of the United States, and have four kids.
At age forty-eight, Ivan died of a heart attack while driving a truck at work. Katerina’s English was poor, so when she came to see me, she brought along a translator, just in case.
Now, it was a mistake, but hardly unusual, for Katerina’s forty-eight-year-old husband to have made no will. If Ivan thought about it at all, he probably assumed that under the marital property or “community property” laws of California, his wife would get everything if he died.
Ivan was wrong, for he had made another important succession error.
Shortly before he died, Katerina had run up about $25,000 on her credit card, and the couple worried that they would lose their home to the credit card company. At that point, Ivan said to Katerina, “I’ll tell you what. Let’s just put the house in my name alone, and that will take care of everything. The credit card company can’t take the house if it belongs only to me.” This alone was very flawed thinking on the part of Ivan. If asset protection were that easy, no legal industry would have grown up around asset protection. To Katerina, however, it seemed like a good idea. She went along with the plan and transferred her ownership of the house to Ivan “as his sole and separate property.”
Even worse, Ivan did not take the next crucial step. He did not write a will in which he left everything including the house to his wife. How many people worry about such things at forty-eight? Because the house was in his name “as his sole and separate property,” when he died, it was not considered “marital property” anymore, and guess what? Their children had an immediate legal right to part of the house. Of the four kids, three were adults, and one was still a minor. The complexities swiftly multiplied.
Katerina sat in my office, crying. “Not only have I lost my husband,” she despaired, “but now I have this issue with my own house.” She was not going to be able to sell the house without going through probate. She wasn’t even going to be able to refinance it without going through probate. And she was certainly going to have to give up some ownership to the children.
Here, we have a clear case of how what you don’t know you don’t know can hurt you, and hurt you badly. Katerina’s struggle could have been avoided if she and Ivan had consulted an estate planning attorney and put their affairs in order. With the right will and the right living trust, no probate hearing would have been required, and Katerina would have taken full control of the house.
Would that have cost a little money? Yes. Would it have been worth it? Oh, yes.
PROBATE GETS EXPENSIVE FAST
Probate is not just a hassle and a potential nightmare, but it can be very expensive. Why? Never mind the court fees, which are annoying, but manageable for most. Probate gets expensive because the cases are rarely as simple as Bob Jr.’s, with a clear will and a single heir.
In most of the probate cases I see, heirs are not working their way through the court process on their own. They may have started out doing it themselves, but they quickly become frustrated, annoyed, and unhappy. So, they hire an attorney to finish the process for them. Typically, the executor of the will also takes a fee to complete his or her responsibilities. All this adds up quickly.
In California and New York, a million-dollar estate typically pays almost $50,000 in probate fees and expenses. Often, these fees are based on the gross value of the assets of the estate without regard to debts. Think about that. If the debts to the estate are high, it’s easy to see how the whole process could end up underwater.
Would you like more information on estate planning and how to avoid probate court? Attend one of our FREE seminars or contact one of our licensed attorneys today!
