Too often, I meet with a recently widowed spouse who knows little or nothing about their estate plan. Usually it is a surviving wife, and she is very frightened. Anyone can understand how difficult it must be to deal with the challenges and emotions of losing a spouse. There may be no lonelier time in that person’s life. It must be especially painful at that time to carry the additional burden of not knowing what will happen next. • “What is going to happen to what we spent a lifetime building?” • “How long/expensive will that process be?” • “How do I even begin?”
In future columns I intend to discuss many of the advantages to using a trust. I explained one of those advantages last week; that a trust can be a very effective way to pass on assets. However, if you use a trust, there is a critical step you must take or your trust could be useless.
Last column I explained why the process of transferring assets should never be more important than ensuring those assets end up with the people you want to receive them. So long as this priority is protected, there can be significant advantages to plan for the right way to transfer those assets.
For those who consider probate (or avoiding probate) to be a significant issue, it is important to remember that probate is only a process to transfer assets. Regardless of whether probate is necessary or appropriate, the process should never become more important than the result. Specifically, the process of transferring assets should never jeopardize the answer to the following question: “Will my assets end up with the people I want to receive them?”
Perhaps because they do not understand the consequences, I have seen many people take “shortcuts” to avoid probate. Last column, I gave the example of parents who transfer their home to a child so that the home could be sold, after the parents pass, without going through probate. That shortcut resulted in a much greater cost to the family than if they had simply utilized the probate process.
However, financial cost is not the only risk when shortcuts are used. Unanticipated consequences from giving up control is an equally significant concern to me. In my prior example, the loss of control occurred when the parents put the house in the name of someone else.
As I have discussed in the last few columns, many people have been told they should avoid probate. Uniformly, the reason given is the fear of what probate will cost.
There may be good reasons to transfer assets to your loved ones in a way other than probate (something I will discuss in a future column). However, it is critical to do so in the proper way. The shortcuts I often see are risky and, ironically, sometimes more costly.
In recent columns, I have tried to take some of the mystery out of the “probate” process. In my last column, I explained why probate may be important even though it is not a process required by law.
I also stated that I would explain why some methods to avoid probate are extremely risky. To do that, I need to first address the motivation to avoid probate.
In my last column, I discussed “probate,” and answered some of the questions I am frequently asked. The most common question is “Why should my (or my parent’s, etc.) estate go through probate?” This is a fair question, especially since no law requires probate.
“Probate” is a term most have heard, but don’t know what it means. Some know it has something to do with a Will, but don’t know how. More than a few have been told it is something to avoid, but aren’t sure why.
What is probate? Probate is a process in which a judge ensures that the debts of a deceased person (the decedent) are paid before his/her assets are distributed; and that the remaining assets are appropriately distributed.
There is so much truth to the saying that “an ounce of prevention is worth a pound of cure.” In fact, when it comes to estate planning, I believe it is accurate to say that an ounce of prevention is worth much more than a pound of cure. When a crisis arises, if there has been no preparation, there may not be a cure.