Is "avoiding probate" a scam?

[marko]

Plus, some states set the attorney's fees based on the size of the estate. My uncle's attorney's fee (I was the executor) set by the state to probate his will was $47,000! A trust would've avoided that. (the rich old fool!)

 

[COcheesehead]

"protect assets" from whom or what?

Getting sued

 

[SecondCor521]

"protect assets" from whom or what?

Bitter/crazy/evil future ex-SIL/DILs, Medicaid, and lawsuits are the usually named villains.

If you TOD your financial accounts then how is the funeral paid for? I'm assuming there isn't a surviving spouse. Do you not TOD one account and have the will specify to pay for it?

Lots of solutions, including the one you named. Other options:

* Executor sells estate assets to pay for the funeral
* Family pays for the funeral out of pocket and then are "reimbursed" by estate/beneficiary/TOD assets they receive.
* Estate is insolvent, nobody steps up as executor. State or Fed probably pays in this case.

designed by lawyers to make you buy useless trust packages? I live in Virginia. I have one husband and one adult child. I'm thinking of doing my own will. Is probate really that big a deal? Why do so many people have trusts? My own father was bamboozled into getting a trust that we had to redo at the end of his life. The lawyer who did it was no longer practicing. It was one of those deals where they lure people in with a steak dinner and then sell them a trust. My father was a retired Navy chief originally from the Philippines, so I suspect having a trust made him feel like he'd made it.

Trusts have their uses and benefits, but also their drawbacks. Trust attorneys offering free dinners probably focus on the former and not the latter.

My story is that my parents set up two trusts in the late 1990s. They paid several thousand dollars for the legal services and documents. This was set up to keep assets from being subject to estate taxes, which were predicted to be onerous.

In 2016 when my Mom passed away, the lawyers said we should have kept things updated (which would have cost thousands). But since we hadn't and their documents didn't keep up with their wishes, financial situation, and legal changes, we ended up doing a TEDRA thing which cost $16K in legal fees, took several months, and required lots of signatures and documents and review. This ended up changing the amount of money from being subject to estate taxes.

Nowadays, I get to file a 1041 for the trust every year, and the trust income is subject to heavy taxation (See 1041 Schedule G for the rate tables; they're quite aggressive.) We could DNI the income, but there are drawbacks to that as well (complexity, estate tax implications).

Now I have been advised by trust attorneys to do more paperwork and legal maneuvers to stick some of that money in places where it would in fact be subject to estate taxes, which would help us get a second basis step-up on that money. This third set of maneuvers would put my Dad more or less in the same spot as he was in the 1990s before the legal maneuvering.

Summary: lots of time, money, hassle, stress, paperwork to avoid taxes that might not have to be paid anyway. And you're paying money up front to avoid *potentially* paying later.

 

[RobbieB]

Trusts avoid probate. Both involve lawyers.

Trusts are more time in advance (need to name all assets in trust name)

Probate is more time after the fact.

Pay the lawyers up front or after. Your choice.

 

[Sunset]

.... To wrap up the rest of the estate required using a probate attorney and going through probate (court procedure) before the assets were distributed. That process took well over a year. Part of the reason for the delay was that some assets (notably, a house) needed to be sold and accounted for, but another part was that anything that involves courts takes a long time these days.

IL is famous for LONG probate times, so much that in the past many folks would use a Chicago Land Trust to hold their home.
This changed 10 years ago when they allowed POD/TOD on a home.

 

[RetMD21]

Trusts have their uses and benefits, but also their drawbacks. Trust attorneys offering free dinners probably focus on the former and not the latter.

Trusts have a bad reputation because of that. I think it is worth reading a book and talking with an attorney or two to see what might be best for an individual situation. The upfront cost of a trust isn't that much if it is needed.

 

[CRLLS]

......



Lots of solutions, including the one you named. Other options:

* Executor sells estate assets to pay for the funeral
* Family pays for the funeral out of pocket and then are "reimbursed" by estate/beneficiary/TOD assets they receive.
* Estate is insolvent, nobody steps up as executor. State or Fed probably pays in this case.

......

Around here, the cemetery and funeral costs want to be paid NOW by somebody. Waiting for a Will to be found, filed and possibly probated to release any non-POD'd accounts to clear probate would cause a delay in payment.

MIL prepaid for her entire funeral. Due to Covid and not being able to fulfill all the things she had planned for such as a wake and dinner, the estate received a partial refund.

 

[audreyh1]

If you TOD your financial accounts then how is the funeral paid for? I'm assuming there isn't a surviving spouse. Do you not TOD one account and have the will specify to pay for it?

Lots of options. You can prepay and make funeral arrangements.

 

[TheWizard]

Can't speak to your example. But in NY avoiding Probate avoids Medicaid Estate Recovery.

Why is this an issue for rich people?

 

[TheWizard]

Plus, some states set the attorney's fees based on the size of the estate. My uncle's attorney's fee (I was the executor) set by the state to probate his will was $47,000! A trust would've avoided that. (the rich old fool!)

$47k would buy a nice Mustang.
No reason to avoid that...

 

[Dash man]

Trusts can protect assets from a new wife or husband from getting their hands on it. Even if inherited funds are kept separate outside of a trust, any increase in value becomes joint assets. In a trust all the funds remain with the beneficiaries of the trust.

 

[wolf]

All of this is state dependent. Probate fees vary by state. My father's estate was in a trust - and assets transferred to his heirs fairly quickly. A friend's parents estate was handled with a will and it took quite a while - even after the home sold. Two anecdotal data points - but I've heard other stories along the same lines - will's take longer to settle than trusts. At least in California.

That said - if most of the assets can be titled POD (payable on death) then a trust is probably not needed. My aunt has her 'estate' (it's not a lot) set up that way... Each of her children get a different asset POD.

But not every state allows transfer on death for real estate. California is fairly new to allowing this.

I just looked up the probate fees in CA.. Filing is $435, and every action after that seems to be another $435-800 fee. Then there's the chunk taken out of the estate. 4% of the first $100k, 3% of the next $100k, 2% of the next $800k, and 1% of the next $9M. So an estate of $1M would cost $23k plus misc fees. Seems like a trust is cheaper.

We have a trust - but we also have kids who aren't fully launched (college) and wanted to make sure they wouldn't get a huge, life changing amount of money before their brains are fully functional. (It pays out in stages starting at age 25, while covering their expenses in the meantime. ) If we were to be hit by a bus tomorrow, I would not want them getting their inheritance all at once at ages 19 and 21...

Agree 100%. Each State is different. I live in California. In the process of
updating our Trust. In California, especially if you have Real Estate, you need a Trust for the reasons you mentioned.

 

[jazz4cash]

Not a scam in my opinion, but I’m sure many trusts are sold by legal salesmen where the benefits are negligible. My brother who owns several rentals expressed interest so I scheduled a free seminar (no dinner) with a local lawyer that hosts a weekly radio show. He was not as impressive in person but I believe he knew his business. No hard sell. My takeaway was that my brother needed a trust but a will was all we needed. There could be some value for us in terms of liability shield but could probably penetrated by a determined plaintiff. DW did fall victim to a nuisance suit and maybe having a trust would’ve saved us $7k, but maybe not!

 

[JBTX]

There are a lot of layers to this.

I’ve heard from some higher end estate planning attorneys that Revocable Living Trusts are often oversold by more run of the mill estate planning and family law attorneys. The benefits of revocable living trusts and probate avoidance is really state dependent. There are many states (so I hear) where probate is simplified and not any more costly than the cost of drafting the living trust documents. Plus you actually have to put the assets in questions into the RLT for it to avoid probate.

Having said that a RLT can be helpful in expediting probate if there are no issues and competent trustees. Also an RLT is a useful way to take over assets if one party becomes incapacitated and is typically more effective the a POA.

Other types of trusts, which typically become irrevocable on death (or before ) can be useful for shielding and protecting assets from creditors and 3rd parties, and can be useful for special needs situations or if beneficiary can’t be trusted to handle a large sum of money.

PODs, TODs and beneficiary designations are simple ways to pass assets and often avoid probate. They work best when the line of succession is simple and everybody dies in the order that is expected. However if people die out of succession or other abnormalities come up simple designations may lead to a less than optimal result, compared to a trust.

One theoretical problem if everything passes direct outside of probate, is there are large unsecured debts, the assets could be designated to pass without a probate to offset liabilities, and you are left with a bit of a mess.

 

[marko]

Why is this an issue for rich people?

That's how they get to stay rich people.

 

[Charlotte]

We have a trust - but we also have kids who aren't fully launched (college) and wanted to make sure they wouldn't get a huge, life changing amount of money before their brains are fully functional. (It pays out in stages starting at age 25, while covering their expenses in the meantime. ) If we were to be hit by a bus tomorrow, I would not want them getting their inheritance all at once at ages 19 and 21...

Exactly the same for us… we have two great kids, ages 20 and 22. Both are in university and on track to graduate and become productive adults. But they are not quite savvy enough to inherit the kinds of $$ that are in our estate. Our trust will dole out big chunks of $$ to them at ages 25, 30 and 35. Small chunks of $$ will be doled out earlier by their trustworthy aunts for health, education, maybe a wedding or a house down payment, etc.

 

[Gumby]

For the young wife and me, probate will not be an issue when the first of us dies, because we don't have any children, and all of our assets that can be jointly owned (house, cars, bank accounts) are jointly owned. The only things that are individually owned are retirement accounts and insurance policies, and, in each case, we are the beneficiary of the other's account/policy. Whoever is the survivor, however, will need estate planning services to direct the money to where they want it to go after they die.

 

[Texas Proud]

My experience has been as the beneficiary of a trust and a will. Part of my parents' estate was in a trust, and the remaining assets were outside of that trust. After my parents died, we children received the assets held in the trust fairly quickly - it took about two months and no lawyers were required. To wrap up the rest of the estate required using a probate attorney and going through probate (court procedure) before the assets were distributed. That process took well over a year. Part of the reason for the delay was that some assets (notably, a house) needed to be sold and accounted for, but another part was that anything that involves courts takes a long time these days.

That is why Texas allows you to bypass a count if you want... just need to file the will, file an inventory, get letters of testament and you are done..

 

[Texas Proud]

Trusts avoid probate. Both involve lawyers.

Trusts are more time in advance (need to name all assets in trust name)

Probate is more time after the fact.

Pay the lawyers up front or after. Your choice.

But how much you pay can be a huge difference... paying later was much cheaper for my mom...


OHHH, and we got a step in in basis on all the stock which saved a crapload of taxes for her kids...

 

[CRLLS]

Not mentioned yet in this thread is the economical Nolo Willmaker and Trust software. For right around $70 one can create a valid Living Trust. Some might argue you "need" a lawyer to be sure. From my experience, only the trustees see the actual full document. I recommend getting the WM software & book kit and go through the process if for nothing else, to educate yourself on some of the decisions to be made. If after doing that, you feel confident in creating a LT, go ahead and skip the attorney. If not then see the attorney with a fair amount of knowledge. The high cost of Lawyers is not "Required".

 

[gayl]

In my state, you can have TOD deeds on homes. If everything else has beneficiaries assigned, you can probably get away without going through probate. My dads estate (house, car, financial accounts) all got transferred without probate.

My mom's estate was a mess in 2012 and she had a trust! After selling her house, no bank would accept the check. Nice guy at Wells Fargo Bank had us to a 1/2 page form, then they let the title company deposit it.

So I titled my home in a trust and drafted the 1/2 page form that Wells Fargo Bank wanted. Put TOD / POD on Schwab & USAA accounts. In that everything else that I have less than the small estate limit in California (currently $184,500) I technically don't need anything else. And even if I slip slightly above that, how would they know?? Kids aren't interested in my paintings, loose gem & coin collections, or jewelry. They're not going to fight over a car. So why bother??

 

[RetMD21]

In that everything else that I have less than the small estate limit in California (currently $184,500) I technically don't need anything else. And even if I slip slightly above that, how would they know?? Kids aren't interested in my paintings, loose gem & coin collections, or jewelry. They're not going to fight over a car. So why bother??

Nice, Michigan's small estate limit was $15,000 (but inflation adjusted) so we are counting on that for some minor accounts used furniture etc.

 

[ncbill]

Nice, Michigan's small estate limit was $15,000 (but inflation adjusted) so we are counting on that for some minor accounts used furniture etc.

Here the small estate limit is $20,000.

Back a few years ago when I opened one, fee was $120...for non-small estates, $150.

About the only advantage I saw was that no creditor notice in the paper is required for small estates.

Cost the same $15 fee to close any estate back then.

I had the family come through & get whatever furniture they wanted.

Anything left went to the dump...even local charities didn't want it.

 

[PatrickA5]

Can the TOD list more than 1 person? We have 3 sons, but the TOD could only transfer to 1 of them.

Yes. I have all three kids on ours. Both my brother and I were on my dads TOD deed.

 

[OldShooter]

This is another thread where rev trusts (prior to death) and irrev trusts (typically but not always created at death or by an estate plan) are being conflated.

In our experience, the estate attorneys consider rev trusts to be a nice thing but not a big deal and do not think there's much point in re-titling minor assets. I think it is only our houses that are in our rev trusts.

Irrev trust are an entirely different matter. There are many flavors and many purposes. They are a prime stomping ground for the
Dunning Kruger effect, the gist of which is that the people who know the least about a subject are the most certain of their opinions. (https://en.wikipedia.org/wiki/Dunning–Kruger_effect) Not picking on anyone in particular here but it is important to understand that "complex" is an understatement. Seek expert advice.