The Living Trust Advisor. Condon Jeffrey L.

probate is litigation that your beneficiaries bring to obtain an order of the court to transfer your assets – to them!

Financial Advisor Alert

      Check if your state has a “Small Estate Law” that prevents full-blown probate administration of, well, small assets.

      In California, where I practice, a deceased person’s probate assets (meaning, bank or brokerage assets in that deceased person’s sole name) that total less than $150,000 can be distributed to that deceased person’s legal heirs without any court involvement whatsoever when those heirs present the account holders with a one-page “Small Estate Affidavit.” After the account holders receive that Affidavit, they are required by law to turn over those accounts to the heirs. It’s that simple.

      But now the question becomes, who are the heirs so entitled to those accounts? Although it’s not your function to make that determination, here is a helpful tip you can give when you are presented with this situation: “If that deceased person has a Living Trust, he will also have an I forgot will, which states, in essence, that his Living Trust is the sole beneficiary of all assets that are in his sole name. As a result, that Living Trust is the heir.. and the ones who sign and present the Small Estate Affidavit are the Successor Trustees of that Living Trust.” For more about the I forgot will, see Chapter 4.

      Like any lawsuit, probate involves attorneys. And where you have attorneys, you have fees. There are two types of fees. First, there is a fee for ordinary legal services, such as filing the court petitions, preparing the distribution order, inventorying the assets, and preparing the accounting. These ordinary fees are usually based on the value of the assets that are going through the probate process. For example, in California, attorneys get 4 percent of the first $100,000 of the assets going through probate, then 3 percent of the next $100,000, then 2 percent of the next $800,000. An estate of $1 million will cost the beneficiaries $23,000!

      For us attorneys, this is great! It’s a lot of money for what is not especially a lot of legal work. No wonder my father called probate “the lawyer’s retirement fund.”

      But it gets better.. at least, for my colleagues and me. The other fee is for services that the court considers extraordinary, and it is paid on top of the fee we already get for ordinary services! So, if there are legal services rendered to deal with matters “beyond the ordinary,” such as selling real estate, defending against a will contest brought by a disgruntled heir, or filing a lawsuit against a person who has an asset that should be brought back into the estate, the attorney gets to bill the usual hourly rate.

      The delays and fees associated with probate are outrageous, and you should go out of your way to prevent them from befalling your family. In order to avoid these problems, you should establish a Living Trust. With the Living Trust, you appoint someone other than the judge – your successor trustee (whom I refer to in Chapter 2 and throughout this book as the “after-death agent” – to do what the judge usually does, which is to transfer your assets to your live beneficiaries after your death. The Living Trust has several advantages:

      • A Living Trust is less expensive and more time efficient.

      • The fees for a Living Trust transfer are significantly less than the probate fees, perhaps 0.5 percent of the value of Living Trust assets.

      • The transfer of the Living Trust assets can take place as soon as your successor trustee wants it to take place.. perhaps as soon as 20 minutes after your funeral. That situation has actually occurred during my practice, but it was borne out of efficiency (as opposed to greed and selfishness). My client’s Living Trust appointed her four children as her successor trustees. After she died, her children came together for the first time in many years for her funeral. Thinking they might never gather again in the same city for the rest of their lives, they came directly to my office after the service, where I prepared a deed that transferred my client’s house from her Living Trust to her children, which they signed on the spot.

      So, What’s Not to Like?

      It sounds like having a Living Trust, as opposed to a will, is a no-brainer. I agree. Use a will – go to probate. Use a Living Trust – avoid probate and save thousands of dollars for your family. But still, you may believe you need a Living Trust when, in fact, you really could do without.

      My basic rule about whether you need a Living Trust is this: If you own real estate of any value, whether $10,000 or $10 million, you need a Living Trust. It’s that simple. If you own any real estate, you should establish your Living Trust and transfer title of your real estate to yourself as trustee of your Living Trust. This vesting is accomplished with a deed, which will read as follows:

      Grantor:

      Mr. and Mrs. Bookbuyer, Husband and Wife

      Hereby transfers, conveys, and quitclaims to:

      Grantee:

      Mr. and Mrs. Bookbuyer, Trustees of the Bookbuyer Living Trust

      When both of you have died, the person or persons you appoint as your successor trustee – probably your children – will transfer the property to the persons whom you have named in your Living Trust as the beneficiaries of your house. No mess. No fuss. No muss.

      If you do not own real estate, and your estate consists of, say, cash or brokerage assets, you could prevent those assets from going through probate after your death, and without the Living Trust, by simply revesting the accounts so that they are “pay over on death” accounts. These are accounts that keep the cash or stock in your name during your lifetime and, on your death, are automatically transferred (without probate) to the persons whom you have named as beneficiaries on the account.

      In order to establish this type of account, you have to schlep to your bank or brokerage house and tell the account representative, “I want to change my account so that it becomes a ‘pay over on death’ account like Mr. Condon said in his amazing Living Trust book.” The representative will then have you complete some paperwork in which you name the people whom you want to receive the account after you die. For example, if you want your daughter to be the beneficiary of that account, the account will then be vested as: Mr. and Mrs. Bookbuyer ATF the Bookbuyers’ Daughter.” The term ATF means “as trustee for,” which expressly states that you are now holding the account as trustees for your daughter.

      The “pay over on death” account is kind of like establishing a separate Living Trust for that asset. I say “kind of” because there is no separate inheritance instrument for that account other than the account itself. But during your lifetime, you have complete control and ownership of the account as if it were in a Living Trust, and your daughter has no access to that account during your lifetime. When you die, your daughter takes over the account as if she were the successor trustee and transfers it to herself as the beneficiary.

Financial Advisor Alert

      If your client sets up this “pay over on death” account and the beneficiary dies before your client, then the account becomes a probate asset and must undergo the probate processes. Instruct your client that if the beneficiary dies during your client’s life, the client must either (a) transfer the account to the Living Trust or (b) name a new beneficiary on that account.

      This sounds like a pretty good arrangement. So you think, “I will just perform the ‘pay over on death’ arrangement on my house and prevent it from going through probate. Why do I need an expensive Living Trust to avoid probate on my house when I can just put it in the ‘pay over on death’ format?”

      I will tell you why! Because that method of holding title to real estate does not exist in the United States. There is no form of real estate ownership in which you can put real property in an “ATF” manner and still have the full use of your house while you are alive.

      There is, however, one method of holding title to real estate in which you can avoid probate of your house without a Living Trust: joint ownership. As you are reading this very sentence, you have the perfect legal right to put your children on title to your house as joint tenants. When you die, your share of the house will automatically transfer to your children (with the preparation and recording of a document that states that you, a