What is probate?

Probate is the court and process for people who cannot make their own personal, health care and financial decisions. The people forced to use this court-controlled process fall into three general categories: minor children (under age 18 in most states); incapacitated adults; and people who have died without legal arrangements to avoid probate. When the court-controlled probate proceedings are required, people can incur unnecessary expense and usually experience a significant delay in legal procedures to be able to take care of themselves and their families. Additionally, probate court proceedings and associated documents are all a matter of public record, which may result in public disclosure of probate assets. Almost all people choose to avoid probate in order to save money, spare their families legal hassles, time delays, and keep their personal affairs private.

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How do I avoid probate?

Although there are many ways to avoid probate, the most efficient way to ensure your family is protected and taxes and costs after death are minimized is by using a properly drafted living trust with all assets aligned with the trust instructions and overall estate plan. This means that not only do you need documents, but assets must be aligned, verified, and tracked so they are no longer probate assets. This is the key to avoiding probate.

For more information, see “Our Services” to learn more about aligning, verifying, and tracking assets.

What are probate assets and what happens to them when I die?

Probate assets are assets owned individually and not otherwise controlled by contract, deed, or operation of law. That means when you die owning an asset in your name individually, no one has the legal authority to control and use the asset. After death, all assets owned in your name individually with a named beneficiary must be reported to the probate court. No one will have access to these assets until the court approves your will as your last will and testament and appoints an executor to handle the probate assets. You can nominate an executor in your will, but the probate court is where an executor is appointed to act. Until the executor is appointed, all probate assets are essentially frozen and no one has use or access.

If you are incapacitated, a beneficiary will not have access to accounts in your individual name and those accounts will be frozen as well. No one will have access to these assets and no one may use them since they remain in your name alone. At that point, the court will need to appoint a guardian or conservator to take control of your assets and medical decisions.

In both cases, the court will ask for an inventory of assets that will become public record. They will require your executor, guardian, or conservator to do a detailed accounting of what money is spent and what money is received during the probate process. Again, this becomes part of the public court record. In essence, all your probate assets and financial activity after death or disability is available to the public.

However, there are ways to avoid probate with proper planning.

What is joint tenancy with rights of survivorship?

This is the most common form of asset ownership between spouses. Joint tenancy (in some states “tenancy by the entirety” when between spouses) has the advantage of avoiding probate at the death of the first spouse. However, the surviving spouse should not add the names of other relatives to their assets. Doing so may subject their assets to loss through the debts, bankruptcies, divorces and/or lawsuits of any additional joint tenants. Joint tenancy planning also may result in unnecessary death taxes on the estate of a married couple.

What is a will and does it avoid probate?

A will is a document a person signs to provide for the orderly disposition of probate assets after death. Wills do not avoid probate. Wills guarantee probate. Wills have no legal authority and are not effective or valid until the will-maker dies, the original will is delivered to the Probate Court, and the probate court approves the will as the last will and testament. Still, everyone with minor children needs a will. It is the only way to appoint the guardian or new “parent” after a mother and father die. If not planned for properly, the court will also take over the supervision and management of assets and monitor the disposition of probate assets.

What is a durable power of attorney and when do I need one?

These allow you to appoint someone you know and trust to make your financial decisions, pay your bills, and take care of your financial well-being even when you cannot. If you are incapacitated, you and your family will be involved in a probate proceeding known as a guardianship and conservatorship unless you have a durable power of attorney and it is recognized or approved by the bank, financial institution, or other entity that is the custodian of your assets.

These days, having a durable power of attorney alone will not avoid probate in the event of incapacitation. Although it is designed to avoid probate, many financial institutions will not accept them based on their rules, procedures, requirements, or other idiosyncrasies that often have nothing to do with the law or the legal validity of the durable power of attorney. A little-known and little-publicized fact is that these institutions are often afraid to accept these documents due to security concerns or edicts put in place by their legal departments. Simply put, the banks, institutions, and custodians fear lawsuits if they honor a power of attorney and the person who created the power of attorney or their family believes the agent acted improperly or illegally.

The solution is to avoid having to use powers of attorney whenever possible (by using living trusts) or getting them accepted or approved during your life. There is nothing worse than when an agent goes in good faith to a bank to use the money to pay for a loved one’s care but faces the bank’s refusal to accept a power of attorney or a request for a new or updated power of attorney signed by the now incapacitated person.

Some institutions’ processes are more client-friendly than others when it comes to accepting powers of attorney, so it is best to ask for prior approval and only seek legal counsel or go to another institution if it is not provided.

Who should have a revocable living trust?

Whether you are young or old, rich or poor, married or single, if you owned titled assets such as a house and want your loved ones to avoid court interference at your death or incapacity, consider a revocable living trust. A trust allows you to bring all of your assets together under one plan.

Frequently Asked Questions about Special Needs Planning

Q: Do those with special needs beneficiaries need to plan differently?

A: Special needs planning should occur when a parent or guardian has a beneficiary who is or could be on some type of government benefits due to a physical, mental, or another type of disability. Those with beneficiaries receiving government benefits such as medical benefits or health insurance based on their disability or based on a financial need should plan in a manner that will not disqualify the beneficiary from any government benefits.

Q: Who would be considered a special needs beneficiary?

A: Any special needs beneficiary has a physical, mental, or another type of disability (such as visual or hearing impairments). Some may be low functioning and will have need of care throughout their lives. Others may be high-functioning and hold some type of job, live in a group home, and complete some high school. However, they will not be able to provide for themselves alone and will be on some type of government assistance (medical, financial, housing assistance, or some kind of special education assistance). It’s difficult to determine the exact benefits that a special needs beneficiary is receiving or may receive in the future. At Family Estate Planning Law Group, we feel it’s best to be cautious; if we think someone may have a special needs beneficiary, we create a special needs trust.

Q: What should I look for when planning for a special needs beneficiary?

A: There are a number of special needs planning techniques, but it is often a balancing act to plan for a special needs beneficiary. The dilemma is determining how to provide resources, benefits, and financial assistance to special needs beneficiaries without jeopardizing any present or future government benefits. This can present difficulties for parents of special needs children, as they may want their child to have an equal share with their other children. Or, if they know their special needs child may not have the earning capacity of their other beneficiaries, they may want to give even more to ensure the special needs child is taken care of.

Q: Should I disinherit a special needs beneficiary to make sure they don’t lose their benefits?

A: Some planners recommend that parents or guardians disinherit a special needs beneficiary. Usually, the planner, parent, or guardian is concerned that giving any type of inheritance, whether it be in a trust or outright, would jeopardize the beneficiary’s access to government benefits. This can be most concerning when a special needs beneficiary is receiving medical benefits. If the beneficiary becomes ineligible—if there is a lack of, denial of, or suspension of coverage—it could be devastating for the beneficiary.

Often parents or guardians give a wink and a nod to another beneficiary and request they provide for the special needs beneficiary. However, while this type of planning guarantees that the special needs beneficiary won’t be disqualified from any government benefits by inheritance, it leaves responsibility for their care in the hands of a third party without any fiduciary duty or legal obligation. A family member, close friend, or professional would likely care for and provide benefits to that beneficiary, but there is no legal guarantee. What if the caregiver dies? What if something happens to the caregiver inheriting the money on behalf of the special needs beneficiary? In the case of the caregiver’s divorce, bankruptcy, or a lawsuit, those assets could be lost without the proper planning.

Q: What types of special needs planning should be considered?

A: We frequently recommend a special needs trust for any special needs beneficiary. These trusts often contain strict rules to determine how money can be distributed to that beneficiary. The trustees may supplement, but not supplant any government benefits that are being received. Money held in the special needs trust pays for anything not already provided by government benefits and may not be used to pay for anything those benefits would provide. For example, if the government benefits would pay for two medical exams per year with a primary care physician, the trustees would be prevented from paying for those first two exams. If a third or fourth exam were required, the trustees would be allowed to pay for those exams.

Again, a special needs trust should supplement, but not replace any government benefits. Trustees must take care that the money in the trust is not used in a manner that would jeopardize the government benefits. We recommend that the trustees consult with an estate planning and special needs professional so they do not run afoul of any trust instructions.

Q: What instructions might a special needs trust contain to give a trustee guidance?

A: In the last few years, there has been a shift in the special needs planning community. Years ago, these trusts contained pages of specific instructions detailing what trustees could and could not pay. This was an attempt to anticipate what benefits the government might provide. But with the changing laws and the scrutiny of these trusts by government agencies, there has been a movement to give trustees absolute discretion regarding the distribution of the funds.

If a trustee has absolute discretion, the government cannot force them to pay for any assistance. An important distinction is that this language gives absolute discretion to the trustee, and does not use the more common trust language giving the trustee absolute discretion for “health, education, maintenance and support” (often referred to as the “ascertainable standard”). Again, anyone planning for a special needs beneficiary or who has a special needs child should speak with an estate planning and special needs planning professional.

Q: Are special needs trusts revocable or irrevocable?

A: A special needs trust must be irrevocable. However, we often draft a special needs trust as part of a parent or guardian’s basic revocable trust so at the time of death, when the revocable trust becomes irrevocable (because the person who can revoke it is now deceased), the special needs trust for the child is created and funded. We recommend including special needs language in a basic revocable trust for all clients, even if there is no known special needs beneficiary at the time, to ensure the trustees will be able to refuse to make distributions that might jeopardize government benefits in the event the beneficiary becomes a special needs beneficiary.

When we do have a special needs beneficiary or know there may be the potential for one, we use specific language and refer to the trust created at the death of the trust maker as a supplemental needs trust or an absolute discretion trust. We also allow the trustees (in the event that the trust jeopardizes any government benefits for a beneficiary) to allow a distribution to another beneficiary so that it is no longer available for that special needs beneficiary.

Q: If a special needs beneficiary inherits or comes into significant assets that may affect their eligibility for government benefits, are there any special planning tools available to them? If there has not been any prior planning, is there anything that can be done after the fact so government benefits are not lost?

A: Yes, there is a special trust in that case called a D4A trust. “D(4)A” refers to a section in the Federal Code that allows a parent, grandparent, legal guardian of the individual, or the court to create a trust on behalf of the special needs beneficiary. Then the special needs beneficiary or someone on their behalf would transfer money into the trust and those assets will not jeopardize any government benefits.

However, upon the beneficiary’s death, any assets remaining in a D(4)A trust must be paid back to the government as reimbursement for any benefits provided to that special needs beneficiary. Again, we recommend consulting with a special needs planning professional or specialist regarding these matters.


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