Malachowski and Associates has litigated complex probate issues including loans against future interest taken against inheritance by beneficiaries, joint tenancy issues, successfully asking the court to deem documents nunc pro tunc, where the action has retroactive legal effect, as though it had been performed at a particular earlier time, and overcoming objections to grant petitions.
Our office has also handled contested trust issues involving disputes between trustees and beneficiaries, including objections, real property appraisals and accountings. Malachowski and Associates has drawn up wills, negotiated competing claims in wills contests and worked with clients to integrate trust and wills issues.
A living trust permits the passing of property without any probate proceeding in court. Thus, a living trust often saves on attorney and executor fees and results in a quicker and more efficient settling of the estate.
A trust is a legal arrangement and set of relationships. Whether you should have a living trust depends on the property you own and your personal circumstances.
Should you have a Living Trust?
Once a high-end estate planning device of the rich, living trusts have become common and popular over the past 10-15 years. Probate proceedings in court can be avoided with a living trust, often resulting in large savings in attorney and executor fees and a quicker and more efficient settling of the estate. Whether you should have one depends on the property you own and your personal circumstances.
If you own real estate worth more than $10,000, transferring it to your heirs on your death must be done in one of several ways: joint tenancy deeds under which the survivor receives the property nearly automatically (there is a simple affidavit to file); a probate proceeding based on a will or intestacy; or a living trust.
Joint tenancy deeds are usually sufficient for passing from a deceased spouse to a surviving spouse. However, for the survivor to pass to the children via a joint tenancy is usually inadvisable as the children's creditors can get into the picture, even while the survivor is still living, and there are complications if one of the children predeceases the survivor but leaves heirs (i.e. the survivor's grandchildren) for whom the survivors want to provide as they would not "take" under the joint tenancy deed.
A will designating your heirs, or reliance on state intestacy law which passes your property to your next of kin, both require a probate proceeding. The probate process usually takes approximately one year and generally involves fees for the attorney and executor totaling 5% (+/-) of the estate. Sometimes court supervision may be desirable, but generally the process is viewed as cumbersome, unduly time-consuming and unnecessarily expensive. A living trust answers the problems which joint tenancy deeds and probate proceedings create. Heirs' creditors cannot come calling until the death of the trustor or settlor (the person(s) who create trust and put their property into it). A full-blown estate plan can be implemented, dealing with such issues as the premature death of a child, educational or support arrangements for children or grandchildren, and special bequests. The delays and expenses of probate can be avoided. For these reasons, a living trust is the Rolls Royce of estate planning techniques for passing real estate and other high-value assets.
Younger couples in good health might reasonably choose to avoid the expense of setting up a living trust. If one dies unexpectedly, the other will succeed to his/her interest with little problem under a joint tenancy deed. Real estate transactions are modestly complicated by the presence of a living trust, with title companies requiring copies of documents and lenders perhaps refusing to deal with a property in trust. For these reasons, many people choose to delay the living trust during their 30's, 40's and even 50's.
By retirement age, there are different considerations. For many folks, it becomes tougher psychologically to meet with an attorney as they pass into their 70's and may become more difficult physically as well if health declines. Usually, the frequency of real estate transactions declines as couples settle into their retirement home. Also, one nice side-benefit of a living trust is that the property of an incompetent or comatose person can be managed by the successor trustee, avoiding the conservatorships that arise most frequently in individuals' golden years. For all these reasons, couples in their 60's should take a hard look at a living trust.
How does a Living Trust Work?
A living trust permits the passing of property without any probate proceeding in court. It also allows for management of property when the trustors or settlors (those who establish the trust and put their property into it) are ill or incompetent. But, how does it work? A trust is a legal arrangement and set of relationships. The trustors transfer property to the trustee. The trustee holds the property for the benefit of (fbo) the beneficiaries. The trust document establishes the identity of the trustors, trustee, and beneficiaries. It instructs the trustee regarding how to manage the property and when or under what circumstances to use the property for the benefit of the beneficiaries.
The trustee is a person or company (i.e. trust department of a bank). The person or company which serves as the trustee can change. The trustee may be and, in fact, usually is, the same person(s) as the trustors when the trust is first established. Later, when the trustors/initial trustees become incompetent or die, a successor trustee assumes the duties of the trustee for the trust. The beneficiaries can also change. Typically, the trustors designate themselves as the beneficiaries during their lifetimes. However, upon their death, their heirs, usually family members, become the new beneficiaries.
An analogy or two may help simplify the explanation. Like a corporation, a trust does not depend upon the life of any particular individual for the trust to continue to exist. If the president of Ford Motor Company dies, the company Board of Directors chooses a new president. The company continues with the new president. Likewise, if the trustee dies, the successor trustee takes over the management of the trust and the trust continues. The successor trustee has full power to liquidate the property and, according to the terms of the trust, is directed to hold or distribute the property or the proceeds from its liquidation to the beneficiaries. Because the successor trustees have these powers, there is no need for a court to empower an administrator or executor to manage a decedent's property as occurs when a will is probated in a judicial proceeding.
Another analogy would be to a cargo ship. The trustors and their attorney "build" the ship when the Declaration of Trust is prepared and executed. Next, the "cargo" is loaded on the ship. This is a process whereby the title toproperty is transferred from the trustors as individuals to the trustee. A typical example would be the trustors, John and Mary Doe, would deed their home to themselves, John and Mary Doe, as trustees of the Doe Family Trust. When recorded, such a deed "loads" the family residence onto the "cargo ship". Investment accounts, CDs, money market funds, savings, stocks, bonds, partnership interests, and even vehicles can be "loaded" onto the "cargo ship" in this manner. John and Mary Doe then install themselves as the "co-captains" (trustees) of the ship and sail it according to their whim and fancy during their lifetimes.
In the event of incompetence, a new trustee can be "airlifted" onto the ship to serve as a new "captain". Likewise, upon the death of the original trustees, they can be replaced as the captains of the ship, generally by family members who have been chosen to act as successor trustees. The ship would remain afloat through any and all of these events with the property safely on board. The new "captain" receives instructions from the trust document about where to "deliver" the cargo, usually in equal shares to the trustors' children. Once the cargo ship is empty, it is abandoned.
Just because a trust permits avoidance of probate proceedings in court does not mean that the courts are unavailable to persons interested in the trust. If a successor trustee is not managing the property wisely or starts treating beneficiaries differently so one is favored and another does not receive a fair distribution, the courts remain available to remedy any such wrongs. For this reason, the choice ofsuccessor trustee is a critical decision. Many families choose to have two successor trustees serve as co-trustees as a guard against any impropriety. Occasionally, a bank trust department is utilized to obtain professional management of assets and address concerns about possible unfairness or favoritism.
Generally, using a living trust "cargo ship" to pass your property saves significant amounts in administration fees. Fees for the attorney and executor in a probate proceeding are calculated on a percentage basis and are often approximately 5% of the value of the estate.
Wills and Probate Administration
First, we need to determine whether a probate proceeding is necessary. In some cases where there are no disputes among beneficiaries and the estate is relatively small, it may be possible to distribute the estate outside of probate. As covered in the trust section above, it is possible to avoid probate altogether with a living trust. Also, property held in joint tenancy may be distributed outside of probate.
Probate can proceed whether or not there is a Will. If there is no Will (or the decedent died intestate), the probate court will appoint an administrator of the estate. Like the executor or administrator of the will, the appointed estate administrator will report to the court to ensure that the decedent's financial affairs are resolved and the remainder of the estate is distributed according to the law.
When the decedent has a Will, the Will generally names an executor. The role of the executor is to assist the attorney in determining the decedent's assets, finding potential beneficiaries, wrapping up the decedent's affairs, opening an estate bank account, making necessary payments, paying off creditors, paying taxes, and ensuring the proper distribution of the decedent's property.