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Estate planning 101 & 102: Part 3

May 2017 | Steven Kramer, Esq.
In part 2 of this multi-part series, we discussed the last of the four basic documents of an estate plan – a Last Will & Testament or Living Trust. In part three of this special series, we will discuss Probate and Trusts along with offering other important estate planning information.

The formality for executing a Will is the signature of the creator (testator) along with two witnesses not named in the Will. Most Wills are also notarized, eliminating the need to ever locate those two witnesses.

There is no need to redo the Will if the witnesses were to pass away or move. There is also no requirement to redo the Will if you move including a move out of state. Each state honors a Will from other states. Can you use a copy in Court? Generally no, but a copy has been accepted under unusual circumstances.

If you pass away without a Will, this is referred to as “Intestate.” The state where you reside has rules of succession that would determine who inherits your assets. Ordinarily, assets would go to your nearest blood kin but there are instances where that could be an issue. If you are married with children and die intestate, the spouse would receive a portion and the children would also receive a portion.

Probate is a court supervised process whereby the named executors or representative petitions the court to have the Will accepted for probate and, also appoint the nominated individual(s) to represent the estate. It is an expensive, somewhat time consuming, process to transfer the assets of a deceased person.  Keep in mind that jointly-owned assets do not go through probate, and designated beneficiary assets also do not go through probate.

IRA accounts, TDA accounts, life insurance and annuities do not go through probate due to the designation of a beneficiary(ies). In Trust For (ITF) bank accounts, Transfer on Death (TOD), Payable on Death (POD) or assets owned by a trust also do not go through probate.

For many people, their estate avoids probate due to the reasons explained above. However, if one spouse or parent dies, there may have to be a probate on now solely-owned real estate or other joint assets upon the death of the survivor.
Probate is public information while a Trust is not. The cost can exceed 2-3% of the estate or more if problems arise, such as missing heirs, Will contest or questions about the validity of a Will.

A Trust is another way of transferring your assets to your heirs, and there are a number of trust variations. Some people have trusts in their Wills, known as a testamentary trust; these are normally done when a person wishes to establish conditions on the transfer of assets (i.e., an heir must be of a certain age, free of drugs or other issues).

In addition to a testamentary trust that could appear in your Will, there are also “stand-alone” Trusts; these trusts used to transfer an estate asset are usually either a revocable or irrevocable living trust.

The more common trust is a Revocable Living Trust, which is created to avoid the expense and time consumed in a probate proceeding. By creating a Living Trust and funding it with your assets, you retain complete control while you are alive; upon your death, the assets in the Trust pass to your heirs without probate, according to the terms of the Trust.

Should everyone have a Trust? Perhaps, but in many instances they are not necessary. If all of your assets have a beneficiary, a Revocable Trust to avoid probate would not be necessary. IRAs, TDAs, annuities, bank deposits with an ITF designation, stocks held with a TOD designation and bonds owned with a POD designation all avoid probate.

As explained, there is no need for a Revocable Trust, unless you wish to place conditions on the distribution of your assets such as age or competency to handle funds of the heirs; in that case, a Revocable Trust would be advisable. If you own real estate, many states such as New York do not provide for a beneficiary designation on the deed. In that case, a Revocable Trust would be a good idea. If you own property in more than one state, a Revocable Trust may also be advantageous.

Is a Revocable Trust costly? While a Will is free as part of your NYSUT Member Benefits Trust-endorsed Legal Service Plan, a Revocable Trust is not. The fee for the production of a Revocable Trust is generally $750 to $1,500, depending on the complexity as well as the cost of retitling your assets into the Revocable Trust (funding the Trust). Real estate placed into a Revocable Trust requires the creation of a new deed with accompanying legal and recording fees.

What about a co-operative apartment? Can I add that to a Trust? You may, if the board of directors and by-laws of your co-op permit such a transfer. Many boards permit this but some do not.

The fear among some boards is they will lose control over who resides in the co-op; therefore, they are reluctant to permit such a transfer or ban it altogether. Confirm the same with your board before you undertake the expense of creating a Revocable Trust.  If the Board agrees, a new stock must be created by the board’s attorneys. Make sure to inquire as to the fee they would charge as it could be substantial. Most Revocable Trusts with the accompanying Pour-Over Will, along with the cost of a new stock or new deed, could easily push the cost to $2,000 or more.

Even at that price, a Revocable Trust is significantly less expensive than the 2% to 3% that probating a $500,000 house would cost; it is also faster than probate and less likely to be challenged.

What is a Pour-Over Will? All Trusts should have an additional document usually referred to as a Pour-Over Will, which is used to put assets into a Trust if the creator of the Trust fails to do so.  A Pour-Over Will is considered a “mistake catcher” and is hopefully not needed as that process of placing assets into a Trust following the death of the creator of the Trust is clearly an unnecessary probate proceeding.

Our National Legal Office clearly advises our clients to “fund their trust” after the document is properly signed and notarized. Unfortunately, there are individuals who forget to do so or purchase a new piece of real estate and do not have the deed placed into the Trust. This could be a very costly mistake.

If all of your assets either have a beneficiary or are in a Trust or are jointly owned, your heirs will have NO PROBATE! Each individual must examine what they own and how they own it to determine if a Trust is required.

Stay tuned for the final part of this article – which will discuss Irrevocable Trusts – in the September 2017 issue of the Preventive Law Guide.