The WAY to WOW Shows
Avoid Probate
November 18, 2024
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[0:25] hello and good good week I guess it is right it's Monday welcome to trusts and Estates weekly I'm your host Kevin bemel and we are here every Monday morning at 10: a.m. Pacific 1 pm Eastern to talk about all things related to as the show's title says trusts and Estates probate all of those issues surrounding what happens with our property when we pass away and also how can we as professionals help people deal with this

[1:02] um part of their financial lives so we're here for 30 minutes and today my our our topic is how to avoid probate right so um you you might call this you know how to avoid needing to pay people for professional advice although it doesn't really may not necessarily work out that way it depends what strategy you're going to use so let me go ahead and share my screen here

[1:39] and there we go okay here we are trust in Estates weekly so um as as those of you who are regular viewers know everything I we do on the way to wow shows revolves around the three pillars of attainment self relationships and Pursuits and on on the shows I do we're focused primarily on the Pursuits pillar in the finances realm although we do um touch on other issues relationships and and our self-identity Etc okay so um

[2:15] that didn't go through there we go all right so before I talk about how to avoid probate we need to talk about what probate is okay so when someone dies and their property is above a certain level and that varies from state to state in order to distribute their assets their estate which is the collection of all their property has to go through a court proceeding called

[2:50] probate now if they have a will you will you'll hear the term their will will be probated that that's just part of the probate process so what happens in Probate is uh if the will appoints an executive or an execut tric so you don't hear that term too often but that's a female executive or a female uh administrator of a will we'll call it okay so if there's a will and and the executive uh agrees to handle the estate

[3:26] so then that person will be appoint appointed to probate the estate you actually don't probate the will per se okay because there are other things that happen in Probate besides what the will directs now if that person doesn't want to be the executive or for various reasons cannot be the executive then the Probate Court will appoint what's called an administrator and as you might imagine uh a a female administrator is

[4:01] known as an administratrix although again I don't think you hear that term used I don't think it's used in any court anymore but it used to be uh you know more common quite some time ago so the execu I'm going to use executive and administrator interchangeably even though they're not the same thing but in in any event the executive is responsible for several things one is is um opening the probate okay now if the executive um doesn't open if the

[4:38] executive if there is no executive then a probate will be open and an administrator appointed okay next that the executive will be responsible for identifying all the property that the deceased owns okay that's the deceased estate the executive will also have the respon responsibility of identifying all outstanding debts okay because part of settling the estate is settling the debts okay now um the the executive

[5:14] oftentimes will deal with issues of life insurance Etc although life insurance typically is not part of a probate um it happens outside of probate um but but in any event an executive will often times deal with any claims for life insurance or if there was some sort of accident insurance and the death was a result of an accident those kind of things then the executive will deal with that and then the executive will see to it that the debts are settled notice I didn't say paid okay because

[5:50] some debts may not necessarily need to be paid they just need to be settled in some way okay and then the the property remaining will then be distributed if there's a will it'll be distributed according to a will if there's no will it will be distributed according to the laws of descent and distribution for the state in which the probate is taking place that's that's a something called intestate s uh succession intestate is a Latin term that means essentially without a will

[6:26] and we're going to talk about that next week how that all that works it can get it can get kind of complex okay but in any case let's let's just deal this week in a case where there is a will and and the will says you know who gets what property so the executive sees to it that the property is distributed and then after everything else is done including if there's if there's any taxes due um whether it's in a fi filing a final income tax return whether it's there's an estate tax return that has well there is an estate tax return that

[7:02] may have to be filed there may be estate taxes due although Estates have to be pretty large these days um and at at least until um I think it's the end of 2025 before that becomes an issue or was likely become an issue for smaller Estates okay and then the then the executive petitions to close the estate and it's done sometimes it can happen pretty quickly other times it can go on four years years depending on what the issues are now in many cases the executive is not a lawyer okay so in

[7:39] addition to there being an executive there will be a lawyer representing the executor to make sure that the person does things correctly the lawyer will see to it that all the proper documents are filed with the court and etc etc okay on the last estate that I probate one of the things the lawyer helped me out with was doing a search for unclaimed property with in in the state where the person died okay and and um that's a typical function of an executive in this case I wasn't an

[8:15] executive I was actually an administrator um but in any event um my lawyer helped helped me do that and and in fact we found something I think it was 120 bucks or whatever it was you know and I applied for it and um I I I think we got the money I I don't recall but in any event um so the thing about probate is it's costly because there's going to be legal fees involved court fees filing fees those kind of things and it can be very timec consuming okay so it can mean a

[8:52] significant delay in time for The Heirs to get the property that the decedent the deceased person the decedent wants them to have and so in in many many cases probate is best avoided okay now um I I didn't give my regular disclaimer but of course I I'm giving I'm giving general information nothing I'm saying applies to your specific case you need to I I you know I recommend you speak to competent advisors to determine

[9:30] what how you should handle your estate or how you to determine how your estate will be handled uh once you pass away okay so this is general information to help you understand some issues and have a more intelligent conversation with your advisors your lawyer your accountant your your financial advisors Etc okay now uh shoot there was another point I was going to make about oh so the most common way to avoid probate is to create

[10:05] a trust typically it'll be a living trust um a revocable living trust I should say all right we're not going to talk about that today I've talked about that previously I've talked about types of trust revocable irrevocable those kind of things so if you're interested in learning more about some basics of trusts I invite you to go to our YouTube channel uh youtube. theeway to wow and you can view those previous episodes what I'm going to talk about for the rest of today's show are some other ways of avoiding probate okay

[10:44] and it may be if you don't have a whole lot of property so these ways may be sufficient perhaps you don't need a trust I say perhaps because again you each situation has to be looked at separately so while these may be useful tools for your situation you know again please talk to your advisers to get to get their input on your specific situation okay so let's look now at how to avoid uh probate okay so the first thing we're going to talk about is what's called a pay on death bank

[11:19] account or what's sometimes known as a Totten trust it's it's not literally a trust um I I I don't I don't recall the uh the way it became known as a TT and trust you don't you don't really hear that term that much anymore okay now what a pay on death bank account does is just what it says if you have a bank account and and and when you die it's it's already been determined who's going to become the owner of that bank account now when we say a bank account it could be a checking account a savings account

[11:55] or even a CD a bank CD account okay so it's not limited to just a checking account okay it could be really any kind of account held by a bank now what what'll happen is you'll you're for the banks who will do this you'll fill out a form and uh I'm I'm pretty sure you have to have the for you have to witness the form which means you go before a notary and you uh swear or affirm that you are indeed the person signing the document okay now all that does all that a pay onde bank

[12:33] account changes is what happens to the funds in the account once you die okay during your lifetime nothing changes okay you maintain control of the account during your life you can put money in you can take money out okay and in fact um you can change who gets the account account when you die by filling out a new form okay so you don't lose any control of of of your funds and indeed

[13:10] you could close the account okay and in that case it would essentially cancel the pay on death uh function and that beneficiary wouldn't get anything because there's nothing for him to get okay so the the key one of the key things to remember about a pay on death bank account account is you maintain control of the account during your lifetime now there are a couple of thing a couple more things to know about it and one is you you may need to notify the beneficiary okay some states require

[13:45] that in order for the pay on death function to in essence go live meaning to be able to be exercised at your death okay and and the other thing to keep in mind is just because you've you've avoided probate doesn't mean that you avoid estate taxes okay estate taxes are assessed on the gross value of your estate okay that's that's the value of

[14:20] your estate the asset the value of all the Assets in your estate so just because the bank has a pay on death um function on a particular account doesn't mean a that they're immediately going to disperse those funds they they're probably going to make sure that they're not required to hold the funds in the in the event of estate taxes and B it does not exempt those funds from being calculated as part of the gross value of the estate in determining whether the estate has to pay taxes or not okay so

[14:55] this is not how to avoid estate taxes this is how to avoid void probate those are not the same thing okay all right so that's that's one way to avoid probate let's look at the next one okay so the next one is called a transfer on death account and and deed or I I I should have said accounts and deeds or account and deed whatever now um a transfer on death account I'm going to deal with that first okay typically you'll see this in a secure ities account like a brokerage

[15:30] account and in a transfer on death account it's it's similar to the previous pay on death um bank account in that you fill out a form and then upon your death that directs who's going to get whatever is in that Securities account okay all the states have have a have this except for Texas don't know why Texas doesn't have it but it doesn't um that that's just what my research showed okay now and and by the way transfer on death account Securities is the most um common

[16:08] area where you you use this particular uh probate avoidance uh tactic now a transfer on death deed relates to real estate okay and you can see about half the states permit transfer on death Deeds including California in New York which are two of the states with the most valuable uh real estate in them okay and and just like a transfer on death account a transfer on death deed determines who gets a property outside

[16:45] of probate okay so you you the the the the real estate does not have to go through the probate process all right another type of trans transfer on account deed I put it in quotes because it's not you don't really you don't deed a car but it's sort of like that is a car okay so some states allow for a car to be transferred on death I believe California has that provision at least with respect to a spouse so if a spouse dies a car will

[17:20] automatically transfer to the surviving spouse it doesn't need to go through probate as long as the car is registered in California okay I had a situation where um a car was registered outside of California um and uh um and so um when the the O when the owner of the car died I had to go to that state in order to deal with the transfer of the car to his

[17:57] spouse okay um it's not like you know if a car is owned in you know Nevada I can and and because California has a transfer on death function for spouses I I can't process a Nevada registered car here in California and say I don't care what Nevada says here in California I can do it it doesn't work that way it's based on where the car is registered okay and some states have that LE less less than half I I I don't I don't know the exact number but it's something to check out again especially if you if if if you have just a few assets maybe you

[18:32] have a couple of bank accounts and a car that's all you've got you know you rented um an apartment or a house or whatever um so you never own any real estate it may be that you you don't need a trust because you can do a transfer on death bank account um you can do a transfer on death account if you have a Securities account and you can just count on you know your car being transferred on death as well and so there you don't have to worry about probate now just like with a transfer on death bank account transfer on death uh accounts

[19:08] and deeds do not necessarily exempt a property the property from from estate taxes the value of the property is going to be included in the gross value of the estate okay and that's what's going to be used to determine whether estate taxes are due do or not okay so again I want to emphasize this this is not how to avoid estate taxes it's how to avoid probate that court process that can be costly and time consuming okay but it's

[19:43] it it it it's not going to mean that you know the minute the person dies you're going to be able to necessarily transfer these assets even though a probate is not required all it means is you're not going to have to go through the formal process of probate which will will make things easier and faster and less costly okay but there still can be delays while some of these other issues like estate taxes get worked out okay now I'm I I talked about um gift taxes I think it was a couple of weeks ago um you know right now the

[20:21] exemption is close to $13 million okay so you can see that for the vast majority of us we're not going to have to worry about estate taxes but that doesn't mean that um just just because an estate doesn't have to pay taxes doesn't mean they're exempt from filing a return right this is the same thing with an income tax return we may not owe any income tax that doesn't exempt us from having to file an income tax return we still have to do that okay and so it may be the case that you know this the

[20:56] The Brokerage will hold off off exercising the transfer on death until the estate tax return is filed or until the final income tax return for the deedon is filed so they can be assured that there's no estate taxes due and they'll release the account to be transferred okay that's going to be a that's going to be a policy issue of a particular brokerage company okay so just work with them most if not all of them have special departments that deal with probate and estate matters and if you call up your the broker who was handling the account if you're the uh

[21:32] executive or the administrator you can and and you can tell them hey I'm administrating or I'm the executive for such and such person's estate they may ask you for what are called your letters testamentary that's the document from the court that verifies that indeed you are empowered to act for the estate okay they may ask you to send those to them or email them or whatever once they have those then with their probably going to do is say you know contact the the estate and probate department they specialize in handling these things and and it will be much better because the

[22:09] typical financial advisor doesn't have a a a lot of knowledge about um probate and estate and Trust matters okay because they don't deal with it that often so you're better off dealing with a specialist and and then just you know perhaps periodically touching base with the brok broker if necessary to just you know make sure you're doing your due diligence with respect to how the account is being handled okay so a transfer on death account or a transfer on death deed typically for Securities real estate possibly cars okay

[22:46] next the final um way to avoid probate that I'm going to talk about is called a joint tency with right of survivorship you'll sometimes see it abbreviated or or AC you'll see the acronym jtw oos J Ross or something like that I don't know I always see that and and I it takes me a beat to because it's it's such a conglomeration of letters okay but it's a joint tency with right of survivorship now as you might notice because there's something called a tency

[23:21] by entirety that's only for married couples that a joint tency you don't have to be a married couple to enter into a joint tency and that is correct now some states don't even have tency by entirety anymore in California we have a joint tency um and and a married couple can be joint tenants they don't have to be here in California I believe the presumption is their um they're they're holding uh property as community property but a married couple can hold

[23:56] property as joint tency and any two people two two or more people can hold property in joint tency with right of survivorship now um real estate is the most common type of property to be held in joint tency okay but you can hold a Securities account as joint tenants as well okay and and and there are other types of property that could fall in that different um uh excuse me like two people could hold

[24:32] a a partnership share as joint tenants um if they wanted to you know we can get into all kinds of complex things but since our our our topic here is how to avoid probate right which which we're trying to simplify things so for for most of us again the most common case where we're going to be a joint tenant is with real estate okay it may be a house it may be a an investment property it just depends on what it is okay and and the same is true for tency by entirety I'm not going to refer to tency by entirety separately it's the it's the

[25:07] um lesser common of the two because there are states where it doesn't exist anymore all right now the thing about a joint tency is let let's say that two people own a property let's say uh two brothers own a property as joint tenants they each own 50 50% we're going to make it a real simple example okay so they have a joint tency with right of survivorship when the first when the first of the two brothers dies his share in that property will

[25:42] automatically go to the other brother okay outside of probate no probate has to take uh no probate has to be done on that property it's it's an automatic function okay and um so so if if for example the the brother who died put in his will that he wants his half of that property to go to his wife and children it's it's not going to the Joint the the way the proper the way the

[26:19] title to the property is held What's called the vesting of the property as joint tenants of the two brothers means that when one dies the other one is automatically automatically going to get the interest of the deceased uh joint tenant okay so that's that's one issue another issue with a joint tency is once you've once you've um created a joint tency to own a property okay let's say it's an apartment building once that apartment building is held by joint

[26:55] tenants it cannot be dissolved by one joint tenant The Joint tenants have to collectively agree to alter the ownership structure or the vesting of that property okay that's why I say you cannot unwind it without the other party's consent okay because you're taking away a property right by by unwinding that joint tency okay once it's created each joint tenant has what

[27:30] amounts to what's called a remainderman interest in the other other joint tenants interest so that cannot be unilaterally taken away okay so that's something to keep in mind because unlike the previous two the um pay on death bank account and the payon uh death account for Securities the person who owns the account retains complete control of them during their lifetime it's only once they die that the pay on death function

[28:07] you know can can uh can happen okay with a joint tency once the joint tendency has been established now the way the property is dealt with is changed and and so let's say you own a property as an individual and and and you know you you're you're dealing with your estate matters and you know you decide well I think I'll set up a joint tency with me and my sibling my sister or something okay once you set up that joint tency you no longer have unilateral control of

[28:43] that property you're going to need the consent of your other of your fellow joint tenant in order to do certain things okay including sell the property all right just like with the other ones a joint tency with survivorship avoids probate but it doesn't necessarily avoid estate taxation okay I'll say it for the third time this is avoid how to avoid probate not how to avoid estate taxes so merely because a property uh transfers to a surviving joint tenant

[29:18] automatically doesn't mean that it's ex Su that it's excluded from the gross value of the estate quite to the contrary it is included okay and so there may be some repercussions about that joint tency that I'm sorry that right of survivorship transfer that that is caused by estate taxes being due if if it was a $50 million property let's say so the fact that it'll transfer outside of probate is all good and well but at $50 million that estate is probably going to be

[29:54] subject to estate taxes I say probably because you you know we we'd have to know all of the uh individual uh particulars of of the situation okay and and we'd also have to know then what provision was made for paying the estate taxes and and all of that that's why estate planning is is so important okay but but again just to emphasize this the a joint tency with right of survivorship it will avoid the process of going through probate but the property is still probably going to be included in

[30:30] the grossest State the valuing of the grossest State all right so those are the three most common ways to avoid probate outside of a trust typically a revocable living trust um that that would be a fourth way that I've talked about before these are alternatives to that okay if you want to get help here's how to get in touch with me you'll see all of this um in the show notes after the episode posts to our YouTube channel and you know here's the legal stuff and let's go ahead and stop sharing because we're coming up at the end of our time

[31:07] so um uh just a couple things I mentioned the YouTube channel so you know Shameless plug um if you if you like the show and don't want to miss any episodes then please do consider subscribing to my new you to our YouTube channel it's really easy to do just go right on the channel you'll see a a button subscribe and click on it and and that way you'll never miss an episode and speaking about episodes so tomorrow uh which is Independence Day I have a a special show and a special guest a very a longstanding friend of mine by the

[31:42] name of uh Rabbi David Becker he's an army chaplain and he is also the founder and director of an organization called jfam Jewish Friends of the American Military and so on tomorrow's show which is business lessons from the military we're going to be talking about how the military uh or how military people take care of their own uh you may say well that's not a business lesson but I think it's a lesson that that you know business we as business owners need to be more focused

[32:17] on these days there's a greater expectation among especially our younger employees about how we're going to interact with them and so I invite you to come at 1100 a.m. Tuesday uh Pacific Time 2 pm Eastern Time join David and me you can get a free ticket to the show on our event brigh uh page or of course you can watch us on social medias as some of you are probably doing right now and then on Wednesday is people making money and uh that is at 12:30 p.m. Pacific

[32:54] 3:30 p.m. Eastern and uh got a show lined up um um for Wednesday a good great show lined up for Wednesday as well I think you will enjoy it it's it's um um on how to use LinkedIn to create relationships professional relationship specifically so I invite you to to watch that as well and then next week we'll start it all over again at at 10: a.m. Pacific time with trusts and Estates weekly so I thank you very much for watching I hope hope this you found this useful if you have any

[33:30] questions comments please do let me know drop the com your questions or comments into our various social media um uh Outlets or shoot me an email and I'm happy to help you and that is it for today so that just leaves me to say as I always do in sign off Marie darling you are my bell thank you all very much for watching enjoy the rest of your