Probate Part II: The Probate Estate

August 21st, 2012

This part in the series will focus less on what is in a decedent’s probate estate and more on what isn’t.

 

As a general rule, anything devised through a will, or given through intestate distribution is considered the probate estate, but there are certain transfers that avoid this distinction. These transfers include:

 

  1. Trusts – trusts made during the decedent’s lifetime can be used as instruments of probate avoidance and any asset or property placed in the name of that trust can be transferred according to the wishes of the decedent. For more information regarding trusts please refer to the Trusts Series of this blog.
  2. Marital Property – generally, property owned jointly with a spouse will automatically transfer directly to the surviving spouse without the need to pass through probate.
  3. Payable on Death Accounts (PODs) – accounts containing POD provisions will be automatically transferred to the beneficiary named in that provision once proof of death of the original owner of the account is furnished to the financial institution.
  4. Life Insurance Proceeds – much like PODs, life insurance proceeds will automatically be paid to the named beneficiary as soon as proof of death of the insured is furnished.

 

These represent just a few examples of the types of transfers and will-substitutes that automatically avoid probate. The utilization of these instruments, as well as other estate planning tools can be a powerful way of avoiding the probate process.

Wills Part VII: Will Challenges

August 14th, 2012

Although it is not common, the validity of a will can be challenged on numerous grounds. A successful challenge to a will can invalidate either a section of the will or the entire will itself. The most common grounds for contesting a will are:

Undue influence – the testator was improperly influenced by a close friend or caretaker to make unusually large distributions to that person
Lack of testamentary capacity – the testator did not have the required mental capacity to make a valid will
Insane delusion – the testator was suffering from a belief which he adhered to despite all evidence to the contrary and that belief materially affected a provision in the will
Fraud – the testator was intentionally misinformed about a matter relating to the distribution of his estate and this misinformation caused him to materially alter the way that he directed that distribution

In order to contest a will for any of these reasons a person must have standing. Essentially, standing is the right to take a legal action. In order to have standing to contest a will a person must either be named as a beneficiary in the will, or be eligible to inherit from the estate if the will or a provision of the will is deemed to not be valid. Contests and challenges require legal proceedings and can be long and costly.

Trusts Series Part IV: Revocable and Irrevocable Trusts

August 7th, 2012

In a previous part of this series we discussed forms of trusts and introduced the inter vivos trust. Inter vivos trusts are any trust created by a donor while he or she is still alive. This is a very general description and inter vivos trusts can come in numerous types and contain many different provisions based on the intent behind the creation of the trust. With this part of the series we will begin to narrow down the types of trusts and the provisions in those trusts.

 

One of the first decisions that must be made in regard to the creation of a trust is whether it will be revocable or irrevocable. The revocability of a trust refers to the donor’s ability to change provisions in the trust or eliminate the trust completely and take the assets and property back. The creation of a revocable trusts grants the donor these rights, this allows for more control over the trust after its execution, but it will lack some of the benefits that an irrevocable trust offers.

 

In a revocable trust, a donor is still deemed to have enough control over the assets in the trust to still have ownership rights. Revocable trusts generally do not offer the asset protection benefits of irrevocable trusts and are more often used in estate planning to avoid the probate of an estate. As mentioned in the previous part to this series, entitled “Trust Forms,” trusts of this nature can be used to pass property in an easier, cheaper, and more private manner. However, irrevocable trusts provide even more powerful benefits.

 

Irrevocable trusts generally remove the donor’s ability to change any provisions in a trust, remove or add beneficiaries of the trust, or dissolve the trust and take back the property within it. The trade off is that the donor is no longer considered to “own” the property in the trust. This means that the trust can be used to protect the assets in the trust from creditors, help to plan for Medicaid qualification, and potentially avoid estate taxes.

Wills Part VI: Beneficiary and Personal Representative

July 31st, 2012

There is no law in Massachusetts that prohibits a person from being both a personal representative and a beneficiary under a will. The personal representative is the person responsible for the administration of the will according to the wishes of the testator. A beneficiary is a person named in the will to receive a portion of the testator’s estate. There is no reason that a person cannot be named both the personal representative under a will and a beneficiary as well.

Not only is this allowed, it happens frequently. Married couples will often execute reciprocal wills naming each other the primary, if not only, beneficiary under the will as well as the primary personal representative of the estate.

Trusts Series Part III: Trust Forms

July 24th, 2012

As stated in Part II of this series, trusts can be made by either oral or written means. Although oral trusts can be just as valid as written trusts they are often harder to prove as valid because there is no documentation to verify them. This section will focus primarily on the two main forms of written trusts, inter vivos and testamentary trusts.

 

Inter vivos trusts are any trusts created by a donor while he or she is alive. This is the most common form of trust.

 

Testamentary trusts are trusts that are created by a will. There may be instances where a testator wants to make a devise to someone, but he feels that that person may not be able to properly manage the assets. That person may be a minor, be mentally incapable, or may simply be bad with money. Testamentary trusts allow testators to make conditional and time delayed devises with more power and control than traditional will provisions.

 

The main disadvantage in the creation of testamentary trusts is the loss of the ability to avoid probate. Inter vivos trusts create a new legal entity to hold assets and property while the donor of that trust is still alive. So long as there are beneficiaries to the trust, the trust will remain active and valid after the donor’s death. Because of this continuation, any assets that are in an inter vivos trust at the time of death of a donor will not be considered part of his probate estate. If property is not part of a probate estate then it does not need to be probated after the death of the donor. The avoidance of probate allows a donor to pass on property after death in an easier, cheaper, and more private manner.

 

Probate Series Part I: What is Probate?

July 17th, 2012

One of the main goals of estate planning for many individuals is the avoidance of probate. People will often consult an estate planning attorney and request this outcome without fully understanding what probate is. This weekly series will attempt to clarify some of the misunderstandings about probate, and shed some light on the recent changes brought about by the adoption of the Massachusetts Uniform Probate Code.

 

Generally speaking, probate is the court-supervised administration of one’s estate. The property that a person owns at the time of his or her death that is required to pass through probate is called the probate estate.

 

Probate involves the filing of a death certificate, the will (if one exists), a petition to appoint a personal representative, an inventory of the decedent’s probate estate, and the eventual distribution of the probate estate according to the provisions in the will or intestate distribution if no valid will exists. While seemingly straightforward, probating a will can potentially involve long and expensive proceedings if complications arise during the process.

 

This series will cover the details of the probate process in further detail as the weeks progress. For more information regarding wills, please refer to the Wills Series on this website.

Wills Part V: Multiple Personal Representatives

July 10th, 2012

There are no laws in Massachusetts that prohibit the naming of more than one primary personal representative. Typically, wills name one primary personal representative and then a successor personal representative if the primary is unable or unwilling to serve.

While it is not prohibited, it is not recommended to name more than one primary personal representative. The probating of a will requires some judgement calls to be made by the personal representative in order to ensure the equitable distribution of the estate according to the wishes of the testator. When there is more than one personal representative a majority of the representatives would have to agree before certain final decisions could be made.

Furthermore, should an even number of personal representatives be named, the chance for a stalemate between the personal representatives is possible. Such a stalemate would need to be resolved by court intervention, a potentially long and costly solution.

Trusts Part II: Creation of a Trust

July 3rd, 2012

In general, the creation of a trust is significantly easier to prove than the creation of a will. In order to prove the existence of a valid trust one needs to only meet 3 requirements:

Intent – in order to prove the creation of a trust there must have been the initial intent to create the trust. This required intent can be manifested in many ways, it may be as simple as a spoken agreement or as complicated as a 50 page legal document.
Property – in order to be valid a trust must have property held within it. It is the trust’s purpose to provide for a beneficiary. If there is no property for the trustee to manage, there is nothing to provide to the beneficiary.
Beneficiary – valid trusts must have at least one identifiable and ascertainable beneficiary. Without a beneficiary the trustee has no reason to manage the property in the trust or person to distribute the trust assets to.

While these are the bare minimum requirements for the creation of a trust, trust creation as a whole is not nearly that simple. In order to achieve the intended benefits of particular trusts certain drafting requirements may need to be met. If these specific drafting requirements are not met a trust will likely still be created, but the trust may not carry all the added benefits intended in the drafting. This weekly series will cover the common forms and types of trusts available, as well as their intended uses and benefits.

Wills Part IV: Marriage, Divorce, and Wills

June 26th, 2012

Both marriage and divorce can have major impacts on your life, but you may not realize that they can also affect the distribution of your assets after your death. A change in marital status can have an impact on the status of any will that was executed prior to that change. It is important to be aware of those effects in order to properly plan for them.

As stated in Part III of this series, generally marriage will completely revoke any will executed prior to that marriage. The reasoning is that once a person marries, it is assumed that he or she will want to execute a new will in order to include the spouse in the distribution of the estate. This automatic revocation can be avoided however, if the will is executed in anticipation of marriage and that anticipation is clearly stated in the will itself.

Unlike marriage, divorce does not completely revoke a will that was executed during the marriage. Instead, all mention of the former spouse is purged from the will and it is treated as if he or she predeceased the testator. Despite this automatic purging it is often suggested that the testator have a new will drafted at some point after the divorce in order to reflect changes in assets and intended beneficiaries.

Trusts Part I: What is a Trust?

June 18th, 2012

By its most basic definition a trust is an agreement by which one party gives control of property or assets to another for the benefit of a third party. Trusts can be used for numerous purposes including the passing of property outside of probate, the protection of assets from certain creditors, and the benefit of someone who is not responsible with money.

There are three main players in any given trust arrangement:

Donor – the person who creates the trust. The Donor is the one who funds the trust with property or assets, determines the rules and guidelines for the trust, and names the trustee and beneficiary under the trust. There can be one or more Donors to a trust. (The Donor can also be called the Settlor or Trustor)
Trustee – the person who manages the trust. The Trustee is a person named by the Donor to manage the property or assets that are placed into the trust. There can be one or more Trustees named under a trust.
Beneficiary – the person benefiting from the trust. The beneficiary is the person who is named to receive some payment of income or principle from the trust. There can be one or more beneficiaries named under a trust.

Under any number of circumstances a person may take more than one of these roles, depending on the ultimate purposes of the particular trust. Trusts come in many iterations, for the purposes of this series general trust provisions and types will be discussed with a focus on specific Massachusetts based laws and rulings.