Most of us know that we should have a will, but many of us do not really know how a will works. A will is the document that states your final wishes. Generally, people use a will to leave instructions about what should happen to their property (assets) after they die. However, you can use a will for much more. Such as, naming guardians for children, deciding how debts and taxes will be paid and providing for pets. In Massachusetts, wills are presented to the probate (yes, the dreaded probate) court in the county where the decedent lived.
Probate means proof. Legally, this means proof that the decedent’s will is legally valid and enforceable. The probate court determines whether a will is valid. It also oversees (with a formal probate) the distribution of assets to specified individuals and beneficiaries, the payment of death taxes, appraisals, and the payment of probate costs such as lawyers’ fees, court fees, personal representative fees, and administrative costs. If the decedent did not have a will or has property that is not accounted for in the will, the probate court will also ensure that property is distributed according to state intestacy laws.
Intestate is defined as a person who has died without having made a will. When this happens the Commonwealth has a law (as of 2012 the Massachusetts Uniform Probate Code or MUPC) that determines who gets your property. The results of an intestate succession will not always be what you would have wanted. Consequently, if you want your property distributed according to your wishes you NEED a will.
Everyone it seems wants to avoid probate. Hundreds if not thousands of articles have been written about how to avoid probate. I am not convinced that going through probate proceedings is as bad as you may have heard but the process is undeniably complicated and unless you have a very modest estate will likely require a lawyer to navigate. The probate process can also be lengthy. So, how do you avoid probate?
First, it is important to state that you cannot entirely avoid probate. In addition to validating a will, the Commonwealth requires that certain procedural steps be taken to protect the interests of creditors and heirs at law. In addition, it is important to recognize what property is included in your “probate estate”. That is, property that would require the probate court’s supervision/approval to be distributed. Strictly speaking, a probate estate includes only property/assets that you own alone, in your own name.
Many valuable assets do not get included in your will, and so are not affected by either the probate or intestate succession laws. These assets will pass to the surviving co-owner or to the beneficiary you named, whether or not you have a will. Some examples are:
- life insurance proceeds
- funds in an IRA, 401(k), or other retirement account
- securities held in a transfer-on-death account
- payable-on-death bank accounts, or
- property owned with someone else in joint tenancy or tenancy by the entirety.
- property transferred to a living trust
As previously stated, there are practical reasons for developing an estate plan. A “simple” estate plan typically consists of:
- a will;
- a Health Care Proxy; and
- a Durable Power of Attorney
For many of us, the simple estate plan is appropriate and properly drafted will safeguard our wishes before and after death.
What about a trust? We all have heard about using a trust to avoid probate. In my opinion, simply avoiding probate is not a sufficient reason for establishing a trust. Having said that, there are many good reasons for utilizing a trust in your estate plan. Several important reasons for establishing a trust are:
Privacy. Wills and probate proceedings are a matter of public record. If you would like to keep your affairs private, and prefer that people do not know how your estate was distributed, avoiding probate through a trust or other mechanism is the only way to do so.
Flexibility. Trusts can be seen as a set of babysitter instructions. That is to say, a trust can be drafted with near limitless specificity and can be changed with less difficulty than a will.
Management. A trust can provide a vehicle for the management of assets during life and after death. You may reach a time in your life when you no longer wish to manage your assets. A trust provides a mechanism for enabling this to happen.
Control. Worried that a child or loved one may spend their inheritance unwisely, or worse, lose it to a creditor. A trust can be drafted so that the beneficiary receives a pre-determined amount at pre-determined times. In addition, you can draft a trust so that a beneficiary is prohibited from assigning anything to a creditor.
In another discussion, we will go into more detail regarding trusts.
In summary, a will serves as the cornerstone of any estate plan. Trusts offer features unavailable with wills. Many of our assets will transfer after death according to contract or property law.
Next week a detailed discussion of the “simple estate plan”.
If you have any questions or would like to discuss your estate plan needs please call Jeff at 508-945-3040 or email firstname.lastname@example.org .
Material presented on the P5 Legal blog and/or website is for informational use only. It is not intended nor should it be considered professional advice.