I will be having surgery soon, and I have been told that I should get a will done so that there wouldn't need to be a probate if I should pass away if things don't go well for me in surgery. But my wife and I don't have a huge amount, so I'm wondering if we even need a will in order to not need a probate after we pass away.
"J.R., this basic scenario is one that has presented itself in one form or another several times recently. So even though we have talked about estate planning and probate on a number of occasions, I thought maybe we should revisit it a little. I'd like to clear up two really major misunderstandings that are present just in the two sentences of this question."
What's the first misunderstanding here?
"We've talked about this one quite often, actually. It's important. Having a Will, in and of itself, doesn't prevent a probate. What determines whether a probate is necessary after your death is the question of what property you own, and how you own it."
Exactly what do you mean by that?
"For example, I had two sets of recent clients who had this basic misunderstanding. Each of them own the home they live in, and I'll get to some further complications they each have in just a minute. Now, they've handled the home ownership wisely, like most spouses do, that is they own the home as joint tenants."
Remind us what that means, again?
"When the first spouse passes away, the survivor becomes the sole owner. No probate needed at that point. It's when the surviving spouse passes away that a probate becomes necessary if they haven't done what amounts to some very simple estate planning to avoid that probate."
Why does the fact that there's a house make a probate necessary when the second spouse dies?
"It's just because a house is real estate, it's not like a mobile home sitting on a rented lot. A mobile home is actually personal property, and the law treats it differently from a house and land for purposes of passing title when the owner dies. We can discuss that a little later today , or in a later segment entirely, but with real estate - land that a house sits on, or farm land, or even just mineral interests - if the person dies as the sole owner of the property, a probate is necessary in order to pass the title on to the heirs."
But you said there's some very simple estate planning they could do now to avoid that result later on?
"Yes, there are a couple of types of deeds they could do. We've talked about these before so for anyone who has watched prior segments, this is going to sound familiar. Either type of deed keeps the property under their control during their lifetime, but passes title to their intended recipients after the second death, without probate." And what are those deeds, again?
"Just very briefly, without going into all the details, one is called a Transfer on Death Deed, the other is a deed by which the clients would reserve what's called the life estate interest, but give their beneficiaries - usually their children - the remainder interest. Again, with both types of deed, the beneficiaries don't actually get the property until both parents are gone, unless the parents choose to make a further gift to them later on. The clients still have all the rights during their lifetimes."
So when the clients told you they owned real estate, I assume that you explained that it's not having a Will that would avoid probate, but how they could set up the ownership of their property?
"Correct. Over my many years of doing this, the idea that having a Will is going to avoid probate seems to be almost the biggest misunderstanding people have as to how the process works. Again, it's what you own, and how you own it. Once you give your lawyer all of that information, she can help you set things up in the simplest way, including your personal property - investments, life insurance, bank accounts."
But you also mentioned that the two sentences in this question contained two major common misunderstandings about avoiding probate. So we talked about the first one, that a Will alone doesn't avoid probate. What is the second one?
"That was one that a client mentioned just the other day. He said something along the lines of "Well, we've got less than $5 million, so we won't need a probate." I knew where that came from, but it was completely wrong, I'm afraid."
$5 million; that's a lot of money. Where did that idea come from?
"A couple of years back, Congress did change the inheritance tax limits so that estates that are below that $5 million limit are not generally subject to inheritance tax. But that increased limit does not, in any way, mean that an estate is not going to need to be probated. Again, the question of probate versus no probate is totally dependent on what you own, and how you own it. In his case, he and his wife own a home, a lake cabin, and some land and minerals in another state, so until we do some of those deeds I just talked about, there would definitely be a probate."
But what about people with no real estate, and very small amounts of personal property only?
"In situations where it's just personal property worth less than $50,000, we can get by without a probate action there, you wait 30 days after the person's death, and you do what's called an Affidavit for Collection of Personal Property of the Decedent and present it to the bank or the Department of Transportation or whatever may be needed to transfer that small item or items to the heirs."
"So if there's anything I'd like people to get from this segment today, it's this: don't necessarily accept legal advice from family members or friends about things like estate planning without verifying that information with a good lawyer. The things I talked about today were just two of the really common complete misunderstandings that I hear over and over again in my office. There's no shame in not knowing the laws on these things up front, but they are very easily and cheaply fixed!"