Estate Planning and Probate: Part Four

Estate Planning and Probate:  Part Four

Although I am dismayed as to why my parent's attorney has not recommended a living trust to them, I have determined that dealing with their will, probate and the estate will be manageable.  However, almost any estate will benefit from using a trust in the distribution of assets following death reducing the burden on the executor.  To put it simply, the trust is used to incorporate a person's wealth for use during their life and to provide for adequate management (usually distribution) upon death.  Since the trust is considered as a person, for legal purposes such as making payments, owning assets, and buying or selling property, it goes on after death of the original owner by naming a trustee executor, the equivalent of a CEO, to continue with its management.  We will now discuss how that is done.

What is a Living Trust?

A Revocable Living Trust aka Living Trust aka Family Trust is a way to turning over assets to legal independent entity that is considered separate from you as an individual.  In other words it is a legal document that holds title or ownership to the property and assets you give it.  You are transferring your assets from yourself or family and titling them in the name of the trust.  This is much like how setting up a corporation creates a separate legal entity from the people who run or manage it.  People can sue the corporation and perhaps put them out of business but the employees or managers of the corporation personal assets are protected.

By definition a corporation is, "A body that is granted a charter recognizing it as a separate legal entity having its own rights, privileges, and liabilities distinct from those of its members."  A living trust is similar to a corporation in that it is a separate entity that requires management, typically you, who retains unlimited access to and full control of the assets during your lifetime even though the trust holds title.  Of course, depending on size, you can manage the trust with any size of a management team you feel is justified, and people often employ lawyers and financial advisers in that capacity.

A revocable living trust looks very much like a will as its purpose is detailing and instructing how your estate is to be handled at your death.  The difference between a will and living trust is how they are handled legally at the time of death.  Note that a living trust can also be non-revokable.  In which case it would go on with continued management and other purpose, like charitable or political foundations, or cease if all assets are lost, as in a bankruptcy.  Suffice to say that trusts come in various sizes and shapes to suit a wide variety of causes.

Why do we want at Living Trust?

Just as with a corporation a trust has to own title to any property or asset.  This means that you have to have legally transferred the title of your assets into the trust name which is called "Funding the Trust".  For example, you would change the owners name on your trust assets such as your home, IRA, 401K, life insurance policies, bank accounts from, say, John and Jane Doe to the trust name of "John and Jane Doe, Trustees of the Doe Family Trust".

The trust avoids probate because you have designated trustees and laid out in detail who will manage the assets.  If a spouse dies the surviving spouse as the surviving trustee receives full control to buy, sell, borrow or transfer assets titled in the trusts name.

Who should you have a Living Trust?

A living trust should be created by persons with two minimum desires.  First are those with significant assets for distribution who wish to avoid distribution arguments or challenges.  Although a mere will can be detailed to a great extent, wills are not as legally binding as are trusts, since they are not regarded as legal entities in and of themselves.  Hence they can be contested.

Second, as has been stated many times, it is for those with a reason to minimize probate and related costs to probate.  The trust, as a legal entity, takes the place of probate as legal method to oversee the distribution of the estate as defined in the document.  There are other reasons people might wish to fund a living trust, but these are the primary ones.

Referring back to the story about when my brother died in an auto accident you'll understand the need for a living trust.  When a loved one passes there is often a knee jerk reaction to get the pain over with as soon as possible from the people who loved the decedent.  Unless our dying wishes and estate distribution are spelled out as succinctly and in an uncontroversial manner, we may hurt the ones we love and have governments and lawyers, not loved ones, benefit from our passing.

The U.S. legal system views a living trust as a very sound legal document that manages passing assets on to whomever you designate without contention.  This is possible because your name has been taken off of the assets thus upon your death there is no need for the courts to remove your name from the assets for legal transfer.  A will on the other hand can be contested as it is considered just an expression of your wishes and will need to be vetted by the courts before assets can be passed on to your heirs.  Take, for example, a house.  When a trust owns a house, the trust executor can use trust assets to continue paying mortgages and taxes.  As the deceased, you can no longer do this from a personal (non-joint with no survivor) account.  In a trust the house can be sold and the proceeds go into the trust for disposition.

Another example might be of a family car that you want to give to one of your children.  If you keep the car in your name you have legal and liability obligations that tie you to that asset.  If you are gone you cannot sign and date any transfer.  Thus, it costs money and paperwork for the court to retitle the car in your child's name before terminating other legal ties to that property.

A living trust is very important because it:

 

• Unlike a will assets titled in the name of trust do not have go through probate.  This can eliminate the need for surety bonds or co-executor representation required in some states for out-of-state executors.
• It will prevent the courts from controlling your assets due to incapacity, where you may still be living but otherwise unable to manage your assets.
• It gives you very specific control over how you leave the assets such as to your children, grandchildren, family, friends, church and charities.

When there are five or fewer beneficiaries the Federal Deposit Insurance Corp. insures each beneficiary up to $250,000.  A trust naming four beneficiaries for example would be insured for $1,00,000.

The living trust is a written legal document that allows you, as the trustee(s), unlimited access to and full control of your assets during your lifetime.  It also enables you to name a successor trustee/executor to pass property on after your death to family, friends and/or loved ones.  In allowing you to appoint someone you make certain your property goes to the ones you choose after your death.

Summary

Just as governments and corporations have a defined line of succession set out when they are created, in the trust you set out a defined set out of successor trustees to act for the trust.  The successor trustee is tasked with managing the trust assets in manner detailed in your trust document.  This is much as the executor of a will would operate, but more specific, legally binding and thus easier for the trustee to assume control.  Note too, that one may assign major assets to a living trust and have a will for minor assets.  When heirs are listed in co-joined documents like this, it lends great credence to the legality of the will, ensuring the court will not alter or allow a successful challenge of the will.

This is very important and really simplifies the handling of the estate for the trustee.  For example, in Virginia this executor/will process is supervised through Commissioners of Accounts, and usually takes about a year.  In many cases, it is desirable to avoid some of the procedures and costs of probate which a living trust helps avoid.

How does a Living Trust work?

ust as with a corporation a trust has to own title to the property or asset.  This means that you have to have legally transferred the title of your assets into the trust name which is called "Funding the Trust".  For example, you would change the owners name on your trust assets such as you home, IRA, 401K, life insurance policies, bank accounts from the name of John and Jane Doe to the trust name of "John and Jane Doe, Trustees of the Doe Family Trust".

The trust avoids probate because you have designated who the trustees of the trust are and laid out in detail who will manage the assets.  If a spouse dies the surviving spouse as the surviving trustee receives full control to buy, sell, borrow or transfer assets titled in the trusts name.  Just as governments and corporations have a defined line of succession set out when they are created, in the trust you set out a defined set out a clearly defined set of successors trustees to act for the trust.  The successor trustee is tasked with managing the trust assets in manner detailed or made know in your trust document.  This is much like the executor of a will but much more specific, legally binding and easy for the trustee.  This is very important and really simplifies the handling of the estate for the trustee.  For example, in Virginia this executor/will process is supervised through Commissioners of Accounts, and usually takes about a year.  In many cases, it is desirable to avoid some of the procedures and costs of probate which a living trust will avoid.

Estate Planning and Probate: Part Three

Estate Planning and Probate: Part Three

The General Responsibilities, Duties, and Roles of a Nonresident State Will Executor in Virginia.

We have been discussing how to prepare an estate for probate and have centered on one aspect!  Being an out of state executor.  I would like to go into some detail here, as it is likely in today's mobile society that many people may have similar issues and this detail should help them understand pitfalls they need to look into for their own non state residency and other concerns.

If you have been named executor of an estate and accept the duties you are morally and legally obligated to make sure the wishes of the decedent are met.  However, what most executors overlook is that you are also obligated to participate in the estate planning and determine if you can accept being executor.  You may not agree with how the estate is set up, the other participants named in the Power of Attorney or other estate documentation.  Perhaps your health and life events prevent you from performing your executor role, etc.  You have to keep the owners of the estate naming you informed should a life event temporarily or permanently prevent you from representing their wishes in the future.

As an estate holder, you must ask the person you intend to appoint if he or she is willing to serve as executor before drafting your will.  You should outline the responsibility and make sure they are willing to perform the task properly.  As attorneys are very well paid they will usually volunteer to serve as your executor.  You must also properly vet your chosen executor to see if they can qualify because if they have credit problems or have committed a crime which the state may not accept if probate is required.  Co-executors are also a possibility to consider but this may create controversy in dealing with your estate if they do not agree on actions and which tasks to perform.

For example, you may cause a sibling or relative rivalry over your estate, unless you don't like them and want this (smile). You should also consider appointing an alternate executor in case the primary or secondary executor(s) cannot serve or are disqualified.  The state will appoint a paid one if necessary.  One who can charge large fees, which you may not want?

The executor or personal representative (also called administrator) you choose may also charge the estate a fee for his or her services.  Often if this individual is a relative and heir, he or she may choose not to charge a fee.  If a fee is charged, in some states the amount is regulated by statute, and in others it is what is “reasonable” for the work performed.  Therefore, executors who inherit under the will often simplify the accounting and distribution of the estate because they may not want to track their expenses and time required to bill the estate.

An executor will likely have to work with the estate's attorney and other professionals such as accountants, financial advisors, or appraisers.  This work is made simpler if the will or trust is well defined in the legal documents left by the decedent.  All these management fees associated with the estate are costs that heirs need to closely monitor as they can be used to overly expense the estate.  Never depend on the courts to make sure fraud does not take place.

Depending on the state, nonresident executors may be required to post a bond with the court in order to serve. This bond acts as a guarantee the executor will manage the estate properly, in order to protect the heirs.

In my own case, according to http://www.virginiaestatelaw.com/main/chapters/qualification/procedure.shtml 
"a personal representative may be a nonresident of Virginia, but surety is required on the bond of a non-resident personal representative, unless a resident co-fiduciary is appointed.  The Clerk must also be satisfied that the person seeking qualification is suitable and competent to perform the duties of his or her office."

Checking with two Virginia attorneys on this I determined this is an either/or proposition.  Either I purchase a surety bond to insure the estate or I bring a Virginia resident co-executor to the court.  I asked a Virginia friend of mine if he would do this and he asked what I forgot to ask the first attorney, "What would be required of me in such a role?"  Hmmm… good question so I asked the second attorney that very question and I got the simple answer:

• He has to show up in probate clerk's office for co-qualification as executor or registration as a designated agent of the estate.
• He has to make sure you do what the estate documents tell you to do.

This is not a responsibility to be taken lightly for if an out-of-state executor ripped off the estate or mismanaged the estate the Virginia resident co-executor could be held responsible.

Since my parents estate was only under a will it would be subject to probate for assets totaling over $15,000 in value.  If the estate went into probate, I now knew this would require me as an out-of-state executor to possibly have to hire a probate attorney or appoint someone local as co-executor thus complicating things and increasing expenses.

I also read that while administering and distributing the estate the executor must publish a notice to creditors in a local newspaper. I asked a Virginia attorney if this was really necessary and he explained that once a person dies the creditors have one year to pursue the estate for debts.  By posting notice in the newspaper you are legally shutting off creditors from pursuing debts after a year.  He also explained this is probably only necessary for very wealthy estates worth a million or more.  But it would also be useful in relieving any subsequent fraudulent activity in the future.  Keep in mind that identity theft is rampant and can be practiced on the deceased as well as the living.

Summary

As executor of any estate you have an obligation to administer the estate with the highest degree of fidelity and good faith for if you do not you can and probably will be held legally responsible.  Being an executor of an estate can be a daunting task as you take controls of the assets, take measures to protect and prudently invest them during administration, identify and pay debts and obligations of the decedent that are enforceable, determine and pay taxes owed by the decedent or their estate, protect and sell off probate property, distribute what remains of the estate to heirs and beneficiaries named in the decedents will or according to state law if there was no will, all the while accounting to the probate court as to how you are handling and distributing the estate assets.

If the estate is in probate, there are also deadlines and detailed responsibilities that must be met.  For example, in Virginia, the executor must contact beneficiaries within 30 days after executor qualification by the court.  Then within four months of appointment, the executor must file with the Commissioner of Accounts a detailed list, known as an "inventory," of the probate property, including the value of each item.  Within sixteen months from appointment, the executor must file another accounting with the Commissioner, showing the income and expenditures of the estate administration.   The final accounting to the court must show the distributions made to the beneficiaries named in the will.  If any inventory or accounting is rejected by the Commissioner of Accounts the executor may have to hire an attorney to help them meet state requirements.

Many of these details will be similar in states across the nation. Investigate them so when you act as executor or you name one, you can speak knowledgeably and confidently to heirs and your own nominees.

The General Responsibilities, Duties, and Roles of a Nonresident State Will Executor

If you discover that you have been named executor of an estate you are morally and legally obligated to make sure the wishes of the decedent are met.  However, what most executors overlook is that you are also obligated to participate in the estate planning and determine if you can accept being executor.  You may not agree with how the estate is set up, the other participants named in the Power of Attorney or other estate documentation.  Perhaps your health and life events are preventing you from performing your executor role and so on.  You have to keep the owners of the estate naming you as executor informed if a life event will temporarily and most certainly permanently prevent you from representing their wishes in the future.

The executor, or personal representative, is the person(s) you appoint in your will to handle the administration of your estate throughout the probate or estate allocation process after your death.  An estate without the proper beneficiary designations or properly prepared legal documents could cost the executor a great deal of unnecessary responsibility, time and effort.  Not to mention this lack of planning could rob their heirs of inheritance as assets are gobbled up in taxes, legal fees and probate.

As the estate holder ask the person (attorney, child, relative or friend) you intend to appoint if he or she is willing to serve as executor before drafting your will.  You should outline what the responsibility entails and make sure they are willing to perform the task properly.  As attorneys are very well paid they will usually volunteer to serve as your executor.  You must also properly vet your chosen executor to see if they can qualify because if they have credit problems or have committed a crime the state may not accept them if probate is required.  Co-executors are also a possibility to consider but this may create controversy in dealing with your estate as they may not agree on things.  For example, you may cause a sibling or relative rivalry over your estate, unless you don't like them and want this (smile).  You should also consider appointing an alternate executor(s) in case the primary or secondary executor(s) cannot serve or is/are disqualified.

The executor or personal representative (also called administrator) may charge the estate a fee for his or her services.  Often if this individual is a relative, he or she may choose not to charge a fee.  If a fee is charged, in some states the amount is regulated by statute, and in others it is what is “reasonable” for the work performed.  Therefore, executors who inherit under the will often simplify the accounting and distribution of the estate because they may not need to track their expenses and their time to bill to the estate.  An executor may have to work with the estate's attorney, along with other professionals such as accountants or appraisers if the will or trust is not well defined in the legal documents left by the decedent as we discussed.  The executors/attorney/accountant/appraiser management fees associated with the estate are venues that heirs need to closely monitor as they can be used to overly expense (rip off) the estate.  Never depend on the courts to make sure this type of fraud does not take place.

Depending on the state, nonresident executors may be required to post a bond with the court in order to serve.  This bond acts as a guarantee the executor will manage the estate properly, in order to protect the heirs.  According to http://www.virginiaestatelaw.com/main/chapters/qualification/procedure.shtml  "a personal representative may be a nonresident of Virginia, but surety is required on the bond of a non-resident personal representative, unless a resident co-fiduciary is appointed.   The Clerk must also be satisfied that the person seeking qualification is suitable and competent to perform the duties of his or her office."


Checking with two Virginia attorneys on this I determined this is an either/or proposition.  Either I purchase a surety bond to insure the estate or I bring a Virginia resident co-executor to the court.  I asked a Virginia friend of mine if he would do this and he asked I forgot to ask the first attorney, "What would be required of me in such a role?"  Hmmm… good question so I asked the second attorney that very question and I got the simple answer:

• He has to show up in probate clerk's office for co-qualification as executor or registration as a designated agent of the estate.
• He has to make sure you do what the estate documents tell you to do.

This is not a responsibility to be taken lightly for if an out-of-state executor ripped off the estate or mismanaged the estate the Virginia resident co-executor could be held responsible.

Since my parents estate was only under a will it would be subject to probate for assets totaling over $15,000 in value.  If the estate went into probate, I now knew this would require me as an out-of-state executor to possibly have to hire a probate attorney or appoint someone local as co- or alternate executor thus complicating things and expenses.  I also read that while administering and distributing the estate the executor must publish a notice to creditors in a local newspaper.  I asked a Virginia attorney if this was really necessary and he explained that once a person dies the creditors have one year to pursue the estate for debts.  By posting notice in the newspaper you are legally shutting off creditors from pursuing debts after a year.  He also explained this is probably only necessary for very wealthy estates worth a million or more.

Before an executor of a will purchases a surety bond from an agency, he or she must submit themselves to a credit check, have their executor application approved, and go through other screening processes.  This is all the more reason an executor does not want the estate to go into probate, which Virginia attorneys assure me is not big deal.  As we will soon discuss, the surety bond protects the estate and the family of the deceased from any fraudulent or illegal actions on the part of the executor and assures that the will is executed as expected.

As executor of any estate you have an obligation to administer the estate with the highest degree of fidelity and good faith for if you do not you can and probably will be held personally responsible.  Being an executor of an estate can be a daunting task as you take controls of the assets, take measures to protect and prudently invest them during administration, identify and pay debts and obligations of the decedent that are enforceable, determine and pay taxes owed by the decedent or their estate, protect and sell off probate property, distribute what remains of the estate to heirs and beneficiaries named in the decedents will or according to state law if there was no will, all the while accounting to the probate court as to how you are handling and distributing the estate assets.

If the estate is in probate, there are also deadlines and detailed responsibilities that must be met.  For example, in Virginia, the executor must contact beneficiaries within 30 days after executor qualification by the court.  Then within four months of appointment, the executor must file with the Commissioner of Accounts a detailed list, known as an "inventory," of the probate property, including the value of each item.  Within sixteen months from appointment, the executor must file another accounting with the Commissioner, showing the income and expenditures of the estate administration.   The final accounting to the court must show the distributions made to the beneficiaries named in the will.  If any inventory or accounting is rejected by the Commissioner of Accounts the executor may have to hire an attorney to help them meet state requirements.