Serving families throughout Lynnfield, Wakefield, Reading, Peabody, Danvers, Beverly, the Greater Boston, North Shore and Southern New Hampshire area
Probate and estate administration are the processes through which estate assets are transferred after death. When probate avoidance planning has not been implemented prior to death, the state will require a probate court proceeding if the deceased was a resident or owned assets in the state. It is important to be aware that when real estate is owned in more than one state, your loved ones will need to go to probate court an institute probate proceedings in each state in which you own real estate. This is called ancillary probate and often requires involving several attorneys, each of whom will charge their hourly fee.
Probate can be supervised or unsupervised. In an unsupervised probate, the appointed estate administrator manages assets, pays any debts, files required tax returns and various court documents, and distributes the estate assets. However, the court may require the process to be supervised at any time (usually when someone expresses concern about the estate administration). In a supervised probate, the probate judge must approve every detail of the estate administration.
Probate Avoidance While Also Protecting Your Family
Because probate can be a lengthy, costly and public process, many people choose to avoid it. Many advertisements, legal websites, and publications herald the importance of avoiding probate but miss the mark because avoiding probate alone will not take care of your family. In fact, many legal strategies employed to avoid probate successfully avoid probate, but at the cost of increasing taxes for the family, exposing assets to creditors, and unwittingly directing and distributing significant assets to young or irresponsible children. We clearly advocate avoiding court interventions, but we advocate legal processes and strategies that avoid probate court intervention while at the same time protecting families and making sure that the family is taken care of the way you intend. Below is a list of some traditional probate avoidance strategies that tend to do more harm than good.
- Joint Tenancy & Tenancy by the Entirety. While adding a joint owner or “joint tenant with rights of survivorship” allows your property to pass to the joint owner upon your death without going through probate, this type of ownership also has some side effects:
- The co-owned assets would be subject to any claims (such as lawsuits) against the joint owner, making them available to the owner’s creditors, all while you are still alive and planning on using the assets yourself.
- Assets do not avoid probate when the joint owner dies (specifically in situations where assets are jointly owned by married couples).
- Assets owned jointly by married couples often results in their children paying higher estate taxes at the death of the surviving spouse. This is especially true in Massachusetts, where any estate over $1 million is subject to Massachusetts estate tax.
- Beneficiary Designations. Life insurance policies, annuity contracts, and other retirement planning assets distribute assets directly by contract to the beneficiary by way of a “beneficiary designation.” In addition, Massachusetts allows Transfer on Death (TOD) or Pay on Death (POD) beneficiary designations to be added to bank accounts. Although beneficiary designations like these allow you to transfer property upon your death without probate court intervention, simply naming individuals as beneficiaries or on a POD designation may cause unintended results such as:
- Unequal distribution of assets;
- Accelerating payments to underage or irresponsible beneficiaries; and
- Increasing the estate tax due at the death of the surviving spouse.
- Revocable Living Trust. A Revocable Living Trust is a legal document that allows you to control your assets while you are alive and well, take care of you and your family if you become incapacitated, and ensure your assets pass according to your wishes while avoiding court intervention, delay, and unnecessary costs. Typically, you serve as the trustee and manage your assets for your own benefit while you are alive and well. Upon your disability or death, a successor trustee is appointed according to the terms of the trust. That trustee then continues to manage or distribute the assets titled in the name of the trust. The trust instructions can accomplish may goals, such as minimizing taxes and protecting assets from any beneficiary’s divorce, bankruptcy, or lawsuit. The key to getting the maximum benefit from the living trust is to ensure your assets are owned or earmarked for the trust (a term we call “asset alignment” or “trust funding”). Although a revocable living trust is often touted as a document that will avoid probate, the document itself does not avoid probate; the assets owned by the trust avoid probate. The primary failings of focusing solely on the trust as a document are:
- Asset Alignment. Many people think that once a trust is signed, their estate plan is done. However, one of the key elements of a successful estate plan is ensuring assets are aligned with the trust. We believe that everything in estate planning boils down to asset ownership. The only way for an asset to avoid probate is to make sure it is owned by the trust, or to designate the trust as the beneficiary. Unfortunately, this is not common knowledge and may people with revocable living trusts incorrectly believe their estate plan will avoid probate because their assets are never aligned with the trust in the first place.
- Asset Verification. Although aligning the assets is a key element of a successful estate plan, many attorneys do not assist clients with retitling assets as a part of their estate planning representation. Instead, they place the burden on the client to contact and deal with each bank, institution, human resources department, and insurance company. In most cases, the mountain of paperwork, institutional requirements, and institutions’ inability to easily process documents prevent clients from correctly aligning the assets with the trust. For more information, explore the Our Services page.
- Updating. Most estate plans, even when drafted properly with appropriate asset alignment and retitling, fail to take care of families because the plan is never updated. Updating changes in assets, family situations, and the law is key to making sure the plan works and that families are taken care of. The plan needs to reflect the legal, financial, and personal realities in effect at the time of your death or incapacitation. Changes happen, and only a process that monitors that change, controls costs needed to make necessary changes, and focuses on the results will take care of the family when it really matters.
- Preparing Those You Leave Behind. We also believe that your guardians, trustees and other professionals should be prepared and informed about your estate plan. This does not require disclosing assets or other sensitive information but gives those you trust to execute your plan an overview and allows them to clarify their roles before your death, disability, or another emergency. We advocate a Family Care Meeting where your trustees, executors, and the guardians of any minor children—those who will need to take over in the event of your death or disability—meet to discuss your estate plan with you and your attorney. Typically, the first time they will hear about the plan is after your death, and they are left trying to piece together what assets you own, understand from outdated documents what you intended for those assets, and are left to deal with professionals they do not know, have never met, and must trust to guide them through a complex and unfamiliar process. We work with clients to schedule a meeting with you, your trusted family members, and your financial professionals so the plan can be outlined by you and your team, and so your beneficiaries have the opportunity to meet and develop a relationship with your trusted financial professionals. That way, the people you leave behind hear about your wishes directly from you and your team of professionals.
Massachusetts Estate and Trust Administration: Avoiding Probate and Taking Care of Families
A properly drafted trust, along with an ongoing process to align, verify, and track assets, their changing value and ownership, and add new assets, will not only avoid probate, but will ensure your family is taken care of. When all assets are aligned with the trust at the time of death, no court filing or intervention is required. Nonetheless, there are still steps necessary to administer the trust, such as:
- New trustees must be appointed and named on each account;
- If required, Massachusetts and federal estate tax returns need to be filed in a timely manner (within 9 months) to avoid penalties and interest;
- A final verification of assets must be made to determine what was owned at death;
- Debts, taxes, and final expenses must be paid; and
- A new asset alignment process is needed to ensure the assets are retitled into the name of the tax- or divorce-protected trusts so tax-savings occurs and assets are protected.
We often encourage selecting the people closest to you—such as your family, friends, or trustees—to serve as the successor trustee instead of professional or corporate trustees. Those closest to you can use their own discretion in hiring the professionals they need to control costs and help them through the estate administration process. The best results typically occur when the successor trustees have already met with your professional team. That way, they can act immediately and with the confidence that they are working with the team that designed and monitored the plan to make sure your family is taken care of when it really matters.