15 Ways to Avoid New York Probate
WHAT HAPPENS TO MY NEW YORK ESTATE WHEN I DIE?
Assets that are in your name alone with no beneficiaries or joint owners will pass by either:
- Probate, through an Executor if you have a Will/Codicil.
- Intestacy through an Administrator if you do not have a Will.
- Small Estate, through a Voluntary Administrator if you have no real estate and your assets are worth $50,000 or less.
WHAT IS NEW YORK PROBATE?
Each county in New York has a Surrogate’s Court that handles the probate of Wills and appointment of Executors, the appointment of Administrators who serve for the estates of people who die without a valid Will, and any disputes over the validity of a Will or the administration of a decedent’s estate.
Probating a Will is the first step in any estate administration. The Executor must locate the original Will to file with the Surrogate’s Court along with the will witnesses’ affidavits, notices of probate, and the petition for probate.
New York law requires that all beneficiaries and fiduciaries named in a Will, as well as, all of the decedent’s distributees (those who would benefit if there were no Will) be notified that the Will is being submitted to probate. Any person who would be adversely affected by the probate of the Will is given an opportunity to appear in Court to object if he or she does not sign a waiver indicating consent to probate. If no one has any objection to the Will and the Surrogate believes that the testator’s Will is valid, it will be admitted to probate and the person named therein will be appointed as Executor
HOW DO I AVOID NY PROBATE?
The following assets do not pass through probate or estate administration. Instead, the proceeds go directly to the person you named as beneficiary or joint owner of that account. Avoid probate with these forms of ownership:
- Life Insurance, unless all beneficiaries are deceased.
- Uniform Transfer to Minors (UTMA) Accounts.
- U.S. Savings Bonds with payable on death beneficiaries or joint ownership.
- Investment Accounts Designated as Transfer on Death.
- IRAs/401(k)s – Required Minimum Distribution (RMD) rules for Individual Retirement Accounts and 401(k)s are waived for 2020. Effective January 1, 2020, the triggering age for RMDs was increased from 70 ½ to 72. If you have already received a distribution from your own IRA, or one inherited from a spouse for 2020, you can roll it back into your IRA within 60 days of receipt.
- Joint Bank Accounts.
- Payable on Death and Transfer on Death Bank Accounts out into Trust.
- Automobiles – One automobile, of up to $25,000 in value, may be transferred with a NY DMV form by a family member.
- Lifetime Gifts – Sign a Power of Attorney with a Statutory Gift Rider to authorize your Agent to make gifts during your lifetime. With the annual gift tax exclusion, in 2020 you can give up to $15,000 to each recipient without tax consequences for a married couple, the total is $30,000 per recipient. Giving away assets that you expect to appreciate in value as the economy recovers makes use of your exemption while also shifting that appreciation in value to the next generation.
- Living/ Inter Vivos Trusts
- Corporation Stock jointly owned.
- LLC membership interests jointly owned
- Real Estate held as Joint Tenants with the Right of Survivorship, Tenants-by-the-Entirety or Life Estate.
WHAT ARE LIVING OR INTER VIVOS NEW YORK TRUSTS?
The COVID-19 crisis has highlighted the utility of trusts as an important part of your estate plan. With stock market volatility, closed businesses, and Surrogate’s Courts being limited to only emergency filings, trusts can be very useful. An inter vivos trust (living trust) is created for holding ownership of your assets during your lifetime for the benefit of named beneficiaries and distributing those assets after your death. Trusts may be revocable or irrevocable. The trust consists of the creator (also known as the grantor), trustee, and beneficiary.
The advantages of trusts are:
- Immediate Access to the Decedent’s Assets: If the trust has been funded, trust assets can be used immediately to help pay for expenses, such as funeral costs, legal fees and medical bills.
- Savings on Probate and Administrative Fees: All assets in the name of the trust will avoid the probate process. If there are no assets in an individual’s name at his or her death, there is no need to probate a will. This can be especially helpful if you own real estate in more than one state. Ancillary probate is necessary to transfer real estate in other states. By transferring real estate to a trust, the need for ancillary probate proceedings is eliminated.
- Privacy: Whereas probate is a public process, trusts provide privacy with regards to the disposition of assets.
- Additional Tax-Free Gifts: Grantor Retained Annuity Trusts (GRATs) and Charity Lead Trusts (CLTs) allow you to pass the appreciation in the value of assets over a hurdle rate set by the IRS to your beneficiaries tax-free. The IRS hurdle rate dropped to 1.2% in April,2020.
- Preserve Your Assets from Nursing Home Costs with an Irrevocable Trust.
WHAT ARE YOUR NEW YORK ESTATE PLANNING PRIORITIES?
Discuss these goals, needs, and situations with your legal, tax and financial advisors to determine which estate planning techniques meet your needs:
- Rivalry or incompatibility among your children.
- Estrangement from your children or other relatives.
- Asset Protection.
- Qualifying for Nursing Home Medicaid.
- Minimizing Property, Estate, Gift, Income, and Corporate Taxes.
- Providing for your Children after a Second Marriage.
- Minimizing Legal Fees.
- Financial Security for Your Family.
- Income, Cash Flow, and Liquidity.
- Maintaining Control of Your Assets.
- Business Succession – Continuity of Ownership & Management.
- Minimizing the Costs and Delays of Probate.
- Medical Decision Making in the Event of Disability.
- Financial Management in the Event of Disability.
- Providing for Family, Dependents, Charities, and Pets.
- Preventing Elder Financial Abuse.
- Updating Wills, Powers of Attorney, Health Care Proxies, Living Wills, or Trusts.
WHAT ARE THE BENEFITS OF AVOIDING NEW YORK PROBATE?
- Save Time and Costs.
- Control of your assets.
- Avoid Will Contests
- No Medicaid Estate Recovery
- Providing for your Wife and Children if You Remarried.
WHAT ARE THE RISKS OF AVOIDING NY PROBATE?
- Not Funding Your Living Trust
- Convenience Bank Accounts – Joint account holder may make withdrawals for purposes other than your convenience.
- Not Coordinating Your Non-probate Asset Distribution with Your Will.
- Joint Ownership – Joint owners can be sued, file for bankruptcy, or have the account compromised by divorce
- Ancillary Probate is necessary if you own real estate in other states.
- The Dangers of Writing Your Own Will
- Prevent these common NY Medicaid & Estate Planning Mistakes
In estate planning, as I said, everyone has their own particular needs. You need to talk to your advisors to see what’s going to be best in your particular situation. There’s a number of things that you may be concerned with in planning out your estate. What’s going to happen to your estate, the continuity of ownership? Who’s going to take over ownership of your real estate investments, your business? Do you have an arrangement to have a partner buy you out with a buy‑sell agreement? Another consideration, too, is if you become disabled or die, who’s going to be managing your properties for you. Asset protection, both protecting your personal assets and your business assets and real estate investment assets from lawsuits from tenants, from creditors, sometimes from spouses.
There’s a number of taxes. There’s always taxes lurking. Most of my clients are not concerned about estate taxes. The federal estate tax limit rate now is 5.490 million for federal estate taxes, and that’s your lifetime exemption for lifetime gifts and estates. In addition to that, you can make gifts of $14,000 per year to as many people as you want. If you’re married, you can double that. On April 1st, New York State estate exemption is going up to 4.1 million. Then, in another year, in April of 2018, it will be as high as the federal exemption. This estate tax exemption applies to gifts, too.
Now, New York State actually eliminated one tax, if you can believe that or not. What tax was eliminated in 2000 in New York State? Does anyone know? The gift tax was eliminated in New York State. New York State does not have a gift tax. There is a federal gift tax. If you make gifts in excess of $14,000 per year to any one particular person, you have to file a gift tax return. You may not necessarily have to pay gift taxes because that’s figured in with your lifetime exemption of 5.4 million, but that is what’s lurking out there.
People are concerned about income tax, capital gains taxes when you dispose of property. If you leave appreciated properties [to the stack] or real estate to someone in your will, you get what’s called a stepped-up cost basis, which is the value of the asset upon death. The same if you were to sign a life estate deed, which we’ll talk about, you get the step‑up cost basis if you transfer property and retain like use.
Also, the other considerations are privacy. There’s differences in various estate planning vehicles if you’re concerned about privacy, about the public not knowing what your assets are. Legal fees is a consideration, financial security for your family and having enough income and liquidity. Also, in analyzing what you need to do with your estate, also, there’s a question of how much control you want to retain. Sometimes you can’t have everything. If you want to protect your assets, you may have to give up some sort of control. As far as with living trusts, if you’re going to go with an irrevocable trust versus revocable trust, you’re going to be giving up control over the asset. There are various ways to still maintain control and get the benefits of taxes. This all has to be analyzed.
What is probate? There seems to be a basic misunderstanding what probate is. First of all, there’s what’s known as intestacy, and those are people that die without a will. You die intestate. Therefore, if you die without a will, what happens? Does your property go to New York State? That’s a common myth. No, your property does not go to New York State if you die without a will. If you die without a will, then an administrator is appointed, which will be some of your closest relatives. If you don’t have any close relatives or if you die without a will with children and your children can’t decide who’s going to be the administrator, then the public administrator is appointed to handle the estate. In Erie County, the public administrator is Acea Mosey. She will take over on these estates where there are no wills. Also, in similar situations, if you have tenants and there is no will and you know they have no relatives, you may want to contact the public administrator to come over. She may or may not take control of the assets in the estate.
By the way, as a side note, too, if any of your tenants die, certainly, you may not be able to stop anyone from going in there, but you should not allow anyone into the apartment if they’re asking for access unless they are an administrator or an executor, and I’ll talk in a minute about that, with a certificate from the surrogates court because, as I see, practically every day, many people are disinheriting their children. Then, they change their mind the next year. It’s a pretty sad situation. Some people haven’t seen their children for 40 years. You don’t want to give access to someone unless they are an actual executor or administrator. Death of tenant does not cancel the lease. The estate is still obligated to fulfillment of the lease or to find a subtenant.
Intestacy basically, if you die without a will, you die with a wife and kids and you have no will, your wife is entitled to the first 50,000 and half of your estate, and the rest of the estate will go to the children. If you don’t any children, I think it goes to your spouse. If you don’t have a wife or a spouse, everything goes to your parents. If you don’t have any parents, it goes to your brothers and sisters, or if you have deceased brothers and sisters, it may go to their children. There’s a whole schedule of who gets what. There may be people that you don’t really know at all end up with your estate.
The probate process, I hear it every week. They say, I have a will. Then, why do we have to go through probate? Well, that’s what probate is. The will itself is like a gun without ammunition. A will itself does not give the executor any authority. You may be able to flash it around, hit someone over the head with a will, but it does not give you any authority until the court has accepted it upon a petition signed by the executor. There’s certain people that have to sign waivers, and you have to be notified. The will itself gives the executor no authority whatsoever. The court has to be satisfied that the will was properly executed, was properly witnessed, and so forth. That’s the whole process, and there’s pros and cons to that. There’s a lot of horror stories about probate taking many years. It can take many years in certain circumstances where the executor is not doing his or her duty and has to be forced to do that, which happens quite often even among siblings, a lot of sibling rivalry and executors not doing their jobs.
Some of the biggest fights have to do with the final accounting as to what bills the executor has paid and what he’s taken in. We’ll talk more about that in a moment. Some of these people spend tens of thousands or hundreds or thousands of dollars just fighting over worthless personal property in the final accounting stage of it. The final accounting, when executors try and close out the estate can be some of the most highly contested parts of the probate process. It’s something you want to keep in mind whether or not you want to avoid probate.
Will contests, basically, I hear it all the time. A child wants to contest a will because they were left out. They feel that they would be entitled to something because they are a child. Maybe in Europe and certain countries, they would be, but in the US, you can disinherit your children and leave everything to your pets if you want. Some people do. This is something else you have to be considering. There’s basically four grounds for contesting a will. Someone does not have testamentary capacity, which means they don’t understand who the natural objects of their bounty are. They don’t really understand who their relatives are. They don’t understand really what the will process is or what they own. It could be based on testamentary capacity. Now, someone can actually have Alzheimer’s or be bipolar and have a lucid moment and still be able to execute a will and have testamentary capacity. It’s a pretty difficult burden for someone to prove that someone does not have testamentary capacity because there’s a presumption that people have testamentary capacity. That could involve expensive medical testimony and so forth.
The second ground is proper execution of the will, and that’s the reason why you shouldn’t use a LegalZoom will to save a few bucks. Execution probably is one of the more common ways of contesting a will. If an attorney has supervised the execution of the signing of the will, it’s presumed that it was done correctly. Basically, the procedure is – it’s a simple procedure, but it has to be followed – is that you sign your will. Then, I will ask the person whether this is their will that you just signed, and they have to, A, answer yes. They have to reply yes and whether they want me and the other witness to witness their estate. That’s a very simple procedure, but it has to be followed. If it’s not followed, the will is not valid.
I’ve only been called in once. I’ve witnessed tens of thousands of wills, but I’ve only been called in once regarding – there’s a hearing held sometimes if someone wants to contest a will. They will question the attorney regarding due execution. That’s actually the first step when you’re going to contest a will is you have a hearing, and you question the witnesses. I don’t have to remember what happened in 1980 on May 31st. I don’t have to remember that Jim Jones signed his will, but I can say with certainty that every single will that I’ve witnessed, I go through this procedure. That’s all I have to testify to. I don’t have to remember what happened back in 1980 because there is that presumption that if it was executed under the supervision of an attorney that it was done with due execution. That’s a very good reason, among many other reasons, why you should not do a will on your own. We’ve had will contests where people have done wills on napkins in hospitals and so forth.
The next ground is duress. That’s where someone, a gun is being held to their head, or they’re being threatened with harm if they don’t sign the will. Another ground, undue influence, which happens quite a bit but is also a very difficult ground. We’ve been involved in defending or prosecuting some with undue influence. Usually, it’s someone in a position of trust, a clergyman, or we had this 70‑year old guy who found this woman out of Virginia in the magazine article. She came up, and he ended up leaving everything to her. In a magazine ad, I mean, not a magazine article. That’s undue influence where someone tries to use their position of trust with someone else to get them to leave their estate to them.
As part of the whole probate process, you can’t disinherit your spouse unless your spouse has abandoned you for a year or signed a prenuptial agreement because a spouse has what’s known as a right of election. If you leave nothing to your spouse, they can file a right of election, and they’re entitled to the greater of 50,000 or a third of your estate. Now, this right of election typically comes up quite often in the situation where someone has a spouse in a nursing home, and they sign a spousal refusal. They’re not going to support the spouse, and they disinherit their spouse. They change their will, disinherit their spouse. So what the county attorney will do, they will file a right of election against the person’s estate so that Medicaid can, then, reimburse. That’s where it may come up.
Executor’s duty, basically, the executor will only have control over what are these probate assets we’re talking about. The executor has no authority to go to the deceased person’s bank and have access to their bank account that’s in their name alone until they have certificates from the surrogate’s court. They have to follow directions in the will. If it’s just someone’s leaving in their will, say, equally distributed amongst their children, then the executor goes to the bank, liquidates the assets, sells the real estate. If you leave something specifically in your will, if you leave your guns or your tools to someone, then the executor would have the authority to turn the guns and tools over to the specific person or deed the house to the person that’s the beneficiary of the house. They’re given that authority, and they have the duty to pay up all the bills and make sure there’s enough to pay off the bills before they make this distribution.
The estate has to be left open for seven months to give creditors an opportunity to file claims against the estate. So sometimes what happens is estates are never opened. We have upside down estates where there’s more debt. The debts exceed the assets. I tell people just walk away from it. For instance, a woman’s mother, all she had was a house with a huge reverse mortgage on it and a lot of debt. Why would you want to even open an estate? You’re not obligated to open an estate. Medicaid may come around afterwards. Social services may come around and be looking for assets, but you’re not obligated to open an estate if it’s going to cost you more to open the estate. Sometimes estates are never probated. The house will just go into foreclosure under reverse mortgage, or any other mortgages go into foreclosure. Things will pass along that way.
Ancillary probate, does anyone know what ancillary probate is? If you have real estate in Pennsylvania or Arizona, the only way that those assets there can be distributed are by opening an estate, ancillary probate estate, in those states. Unlike personal property, real estate can only be transferred by – it comes off the probate in New York State. You do ancillary probate in that particular state. In that instance, that’s one example of why you may want to avoid probate, to maybe put these properties into trust or joint ownership or stuff like that we’ll be talking about is that you want to avoid the cost of ancillary probate, which is not really complicated. You take your certified documents from Erie County, and they have to be filed. Your executor has to file down in Pennsylvania if you have property down there and so forth. That’s another consideration.
How many people here do not have wills? Pretty good group here. How many people have living trusts, have any living trusts here? Limited liability companies? How many people here have powers of attorney? By the way, this isn’t part of probate, but, actually, power of attorney can actually be – one thing I try and impress on people is that a power of attorney many times can be even more important than having a will, if you become incapacitated, in order to preserve your assets and so forth. I do encourage everyone to have a power of attorney. People say, “Well, I’m feeling great now. I don’t need a power of attorney.” Many times, we get called to hospitals. People never signed their powers of attorney, and if they never signed the powers of attorney, you have to go through very expensive guardianship proceedings under the Mental Hygiene Law, which can cost thousands of dollars and really extend things out. If you learn nothing else, you really should all have powers of attorney.
Updating your will, there’s quite a different number of reasons you should update your will, especially if you have changes in your family with children, grandchildren, your spouse dies, if your financial situation changes considerably, if you start a business. If you move to another state, the other state may recognize it. New York will. You’re probably best off, especially if you’re going to Florida where the laws are quite different. If you’re getting divorced, of course, you may not want your in‑laws to hold these positions that you’ve appointed them to such as executors and guardians and trustees and so forth. Then, if you’re going to be moving your assets, which we’ll be talking about, into non-probate assets. We’ll talk about non-probate. Probate assets are only those assets that are in your name alone, basically speaking. If you’re going to be moving some of your assets into being non-probate assets, then you may want to adjust your will so everything comes out evenly. You want to make sure there’s even distribution.
It also may cause inequality if you have non-probate and probate assets in that the debts and administration expenses are going to be paid out of the probate assets and not paid out of the non-probate assets. The beneficiaries of your probate assets through your will will be getting less because their distributions may be affected by what you owe. If you need to provide for beneficiaries with special needs, grandchildren, children, you may want to provide for a supplemental needs trust in your will so that they will not lose their benefits. If they’re on SSI or Medicaid, it can go to a special trust for luxury items for them. That’s something you want to think about.
If you want management, we’ll talk about testamentary trusts. I have 22 reasons on my blog, which is referred to at the end of the outline here. I have the various reasons to update your will. Forms of ownership, first we’re going to talk about forms of real estate ownership, various ways of owning real estate. The first is tendency by the entirety. That means husband and wife owning property, and it has to be designated as husband and wife on your deed to enjoy the benefits of tendency by the entirety When once spouse dies, it automatically goes to the other spouse. Widows usually come in or widowers come in and say they want to probate their spouse’s estate, but many of the assets like the house may go to the spouse, and it does not go through probate. It has nothing to do with probate. Automatically passes. Then if your spouse dies, you can do whatever you want with the house. It goes by operation of law. It does not pass through the law.
The same with joint tenants with a right of survivorship. If your deed says joint tenants with right of survivorship, if one of the owners dies, it automatically passes to the other owners. These are all non-probate assets, these first few ones. There’s life estate in which we have – with real estate, you can have future interests in real estate, not have immediate interests, so very often people still do that for nursing home planning, Medicaid. They would transfer the house to a child, one or more children, and keep life use. That means they have the right to live there. They have the right to rent it out if they wish. No one can kick them out. They’re entitled to all the property tax exemptions as long as they reapply, just a procedural thing. They’ll still get all their property tax exemptions as long as they still live there. Then upon their death, it would automatically pass to their children.
Now there are a couple complications with that. In fact, I just spoke with someone today where the child dies before the parent. That’s a problem. Unless you have special provisions in the deed, then it still would go through that child’s estate. That child may not end up with the house. The other one is if any of your kids go bankrupt, and that’s happened, too. If any of your kids go bankrupt that you put on the deed, you may have to pay money to the bankruptcy court. It could be tens of thousands of dollars because the bankruptcy trustee – this is, I’d say, legal interest. Your child has legal interest in the real estate. It’s a future interest, but that’s worth something depending on your age. Money may have to be paid to the bankruptcy trust.
Something we do is transfer the child least likely to go bankrupt. They sign an agreement that they will share that with the others. Now there are alternatives to avoid this problem where you can, instead of transferring it directly to the children, you could transfer it into a trust, an irrevocable trust. You don’t have to be concerned about these life estate issues. That’s life estate. Many people are still doing that, many of our clients. Their major asset is their home. It’s a non-probate asset.
Living trusts, people say all the time, “Suze Orman says I need a living trust.” There’s a few problems with living trusts. There’s a lot of myths out there about these land trusts, about what they can do, about asset protection. Some states like Delaware have special asset protection trusts where you actually file with secretary of state. Living trusts are irrevocable or revocable, set up during your lifetime for protection of asset preservation, including Medicaid and protecting your assets from creditors and lawsuits. It has to be an irrevocable trust but there again, you’re losing control. In an irrevocable trust, you will not have access to those assets. That’s all something that has to be laid out and considered.
Living trusts were being promoted as avoiding the due on sale clause, which I don’t think is such a big deal anymore. It used to be with these lower interest mortgages about selling property and sure doing the due on sale clause, but there was a myth about people had put their assets in living trusts and then sell the beneficial interests.
A revocable living trust doesn’t save you estate taxes any more than a will can do that for you. An irrevocable trust can save you in estate taxes. It’s used to house a life insurance policy, to own a life insurance polity, to provide ready access, liquid assets if someone did need assets to pay for estate taxes. Irrevocable trust does avoid probate. People say they want a living trust but when I look their their assets, there’s many assets that you cannot put in a living trust such as IRAs or assets you may or may not want to put into a living trust.
There are appropriate in certain instances. As far as privacy, it’s completely private versus your probate. The probate is all public records. For second marriages, it may be especially important. A widower has five kids. He marries a younger woman with no kids, and she says sure, my will will be exactly like yours. Just like your will, when both of us are gone, everything will go to your kids. As soon as he dies, she can change her will. In that case, he may want to set up the assets in living trust so she can benefit off that, or leave it to her in what’s called a testamentary trust. Testamentary trust is created by your will. It goes into existence upon your death, and you can appoint – the trustee receives their authority certificates from the surrogate’s court.
Corporations can also own real estate, S-corporations or C-corporations. You can have stacked that’s payable upon death to avoid probate. Self-directed IRAs, those are other IRAs that avoid probate. Limited liability companies, they can be provided to avoid probate, and that can be very important, especially for ancillary probate in other states. If you have an LLC interest in another state, you don’t have an interest in real estate. You have the LLC interest, so that can be transferred without going through ancillary probate.
From here on, these are not non-probate assets, but testamentary trusts can also own real estate, which would be created. Very often, people leave assets to their children, if something were to happen to both parents, until they’re 25 or so, to manage those assets so they’re not depleted. The testamentary trust could be the owner of the home that you leave to your children.
General partnerships, those are just formed by filing a business certificate with the county clerk. Those provide you with no liability protection. Those types of interests, general partnership may dissolve upon death. Doesn’t have any continuity. Limited partnerships are used primarily by professionals. Many people hold real estate in their individual name, which I strongly advise against because of the liability exposure you have if you don’t have adequate insurance.
I strongly advise against land contracts, whether you’re the buyer or you’re the seller. Land contracts are essentially where it’s a contract of sale that may not close for five or six years and payments are being made in the interim. The motive is the buyer can’t get a mortgage. May be a very good reason why they can’t get a mortgage. The problem with land contracts is if it’s a land contract as opposed to a lease with the option of purchase, you cannot evict them if they fall behind on their monthly payments. They’re not considered to be tenants. I know landlords have tried doing that, but if you have someone in there as a land contract, they say well, I make payments of 1,000 a month and then in three years when I have enough saved up or my credit’s good, then the contract says I’m obligated to buy the property from you. That could be a big problem. You actually have to go through a mortgage foreclosure proceeding to get that person out of there. They have what’s called an equitable interest in the property That’s why I strongly advise against it. Usually they never work out anyway.
I strongly don’t advise buyers to do it, either, because I’ve seen nightmares on that situation, too. The title’s still in the seller’s name during all these years, and the buyer could have a substantial amount of money invested in the property, and the buyer cannot give good title because it’s got tax liens against it. Maybe he’s become incapacitated or been divorced. There’s all sorts of problems that could happen where he may not be able to or may not be willing to do it after all these years after you have all this money into it. It’s really a bad deal. I do recommend, though, an option –
Now a land contract is different than lease with option to purchase The difference with an option is the tenant or your buyer has a right to buy the property but not the obligation. That’s not a land contract. That’s different. They’re not putting down a big deposit. They don’t put down a big deposit until they want to exercise their option, which you can put the number of years down on that. They have so many years to exercise their option by serving notice on the seller. Then they put a down payment down. They’d have to get a mortgage or whatever and disclosing that. Those are okay, but you have to distinguish that. A land contract is what’s known as equitable title.
Tenants in common, this is the flipside of joint tenants with the right of survivorship. That’s why when I advise people if they have joint ownership, I really need to see their deed to see if it’s tenants in common, their interest will pass through their estate; it’ll pass through their will. It won’t automatically pass. There’s joint tenants with the right of survivorship, which the deed says that, which automatically goes to the survivors without probate. Tenants in common, your share, whether it’s a half, a third, whatever, one-fiftieth, is going to pass through your will. That is a probate asset. That could involve greater expense and different consequences.
We spoke about the real estate probate avoidance. You need to understand in the whole grand scheme of things other assets that avoid probate. Life insurance generally does avoid probate. It avoids probate if your beneficiaries are all dead. We have people that named their mother in 1950. They used to have door-to-door salespeople for life insurance. It was Continental or whatever They never changed their beneficiary. If your beneficiary’s deceased and you have no primary or contingent beneficiaries, then it has to pass through your estate, the life insurance proceeds. Otherwise, it passes completely free of probate.
That is separate and apart from you can put your life insurance policy – you can change ownership of your – so there’s the insured, whose life it is, but ownership of a life insurance policy is the owner has a right to designate who the beneficiaries are. You can change ownership into a living trust if you want to take that out of your estate for estate tax purposes. There again, I said estate tax planning is not most people’s consideration anymore. What you need to know about estate taxes is that they are determined by your probate and non-probate assets. Anything you have ownership control over – so a life insurance policy, if you have a $200,000 life insurance policy, you can get that out of your name and transfer into an irrevocable trust and that way not be subject to estate taxes but will give you the money to pay estate taxes if you had to pay estate taxes or your estate had to pay estate taxes shortly after death.
Bank accounts, and we’re seeing more and more of this, various forms of ownership of bank accounts. You can have a trust for someone that passes outside of probate, joint owners on an account payable on death, which would pass out of probate. Now there’s quite a bit of litigation. A joint bank account, Mom’s got five kids and she puts one of the kids on as a joint account for convenience so that her daughter Mary can write checks. Then upon death. It automatically goes to Mary. By operational law, it passes to her, but if it’s a convenience account, it is part of the estate and should be distributed according to the will. Sometimes, the executor has to chase after that account. This is just checking accounts that are jointly owned that are convenience accounts and are part of the estate, not payable on death accounts or in trust for accounts but ones that are convenience.
A better alternative, again, may be power of attorney because when someone dies, a power of attorney is no longer valid. A power of attorney may be a better alternative to putting your daughter on, have the authority to sign your checks, because their authority will cease. Sometimes you may want them to have access to those funds upon your death so they can pay your bills. If you have many kids who may be fighting over it, maybe you don’t want a convenience account. It can be very handy after death because accounts will be frozen if it’s just in one person’s name.
Annuities, those avoid probate if there are beneficiaries on that. Uniform Transferred to Minors Act, you can set up custodial accounts with you as the custodian or someone else for children under 21 and then those avoid probate also. It could be Robert Friedman as custodian for someone under the Uniform Transfers to Minors Act. Those avoid probate.
If your retirement benefits have death benefits, those are non-probate assets. Automobiles up to $25,000 can be transferred without probate to a spouse or other relatives just with completing a form. They simplified it a year ago, last April. Before, it was just spouse and minor children. Now really any relative can transfer the automobile without going through probate, one automobile.
Another way of avoiding probate sometimes people meant to make a gift but they never did it. They have limited assets and just because they may have many non-probate assets and one probate asset, which just for the one asset, they may have to open an estate for that. Gifts are a good way to avoid probate if you want to give up control of those assets and don’t want the expense of having it go through probate.
US Saving Bonds are payable on death. You can have stock accounts payable on death. It’s pretty much most assets can be set up to be payable on death. As far as wanting to avoid probate, the non-probate assets, for the most part, can be transferred to the beneficiaries considerably faster. Estates normally have to be kept open for seven months. Partial distributions can be made sometimes, but to make sure all debts are paid, the executor may not make distributions until seven months, usually about a year, and then with will contests, sometimes with distributions, we had –
So in Erie County, they’re not too good about – because they’re opening a thousand cases a month in Erie County Surrogate’s Court, new cases. They don’t have as much time as other counties. Other counties, they’ll get it after you close the estate after nine months. We actually have these two brothers that had been fighting. Their father died in 1985. they came to me a couple years ago to get the estate wrapped up, and they’re still fighting. This is half their lives they’ve been fighting over some ridiculous things. That’s the way people are. We’re going on 32 years. We just got involved a couple years ago, but it’s unbelievable what people will do. It’s not even actually about the money. They just want to spite one another. There have been some extremes of that.
Probate can be prolonged. In Surrogate’s Court in Erie County, we used to say once we file all our documents that they would approve everything, issue the executorship within a few weeks. Now it can be many months sometimes for an executor to get his certificate of authority to give him access to do that. There again, if you have non-probate assets mixed in there, sometimes it’s a lot quicker access.
Living trusts don’t go through probate. The living trust agreement could state how you want your property disposed upon your death, or it could go on beyond your death. Living trusts can continue beyond your death to provide property management for younger beneficiaries or ones with special needs and so forth. Trusts can be wrapped up pretty quickly if it’s going to be terminated upon your death. Pretty much, it’s pretty simplified as far as just releasing – the trustee just makes up a statement and it gets released.
That’s all public records. You can go down and see who someone’s relatives are and the probate records at surrogate’s court at 92 Franklin Street. There is no privacy where. If you did non-probate like a living trust, that would be private.
One of the problems with living trusts is I’ve seen people spend thousands of dollars on living trusts, and they’re walking around with these big notebooks with living trusts. I’ve seen it happen many times. The living trust does you no good unless you find the living trust. They had a living trust agreement, but the living trust is no good unless you change the title on your real estate to the living trust. It has to be in the name of trustees. Trustees are the titleholders of real estate. There’s not complete privacy with living trusts. The trustees’ names are the titleholders on the trust. You need to change your accounts over to that. That is one of the risks of avoiding probate. Those assets that are not put in the name of the trust, even though you have a living trust agreement you’ve drawn up, would still have to go through probate if they weren’t changed over.
As I said with joint bank accounts, there can be a lot of confusion. You need to coordinate. If you have non-probate assets, you want to make everything equally, you have to make sure that your will reflects that.Download the Powerpoint Presentation