Is the fear of probate being used to sell you something such as a trust? Many people do not realize what probate is, and this webinar is meant to describe when it applies and when it doesn’t. Weighing your estate plan options can be difficult; join us to learn more about the probate process. Some of the topics that will be covered in the webinar include:

• What Are the Two Reasons Married Couples Might Not Want to Avoid Probate?
• Can Probate Be Avoided Without Being Sold a Trust?

The information presented in the webinar is for informational purposes only, and is not a substitute for legal advice.

The opinions expressed in this webinar are the opinions of Attorney Brian Barreira on the law as written as of the date of the webinar recording, August 19, 2021. The information presented in the webinar is for informational purposes only, and is not a substitute for individualized legal advice.

Webinar Transcript

Brian: I’m going to start this webinar now, Hi I’m Brian Barreira, I think a lot of you already know that because many of my clients are here. I practice estate planning, probate, and elder law in Plymouth, Massachusetts, and this program is ‘What is probate and should you try to avoid it?’ Let me say a couple of things first about what this program is and what it isn’t. This is not how to avoid probate, this is what is probate, just so people know what we’re talking about when we’re talking about avoiding probate. This isn’t legal advice, this is just one piece of the estate planning puzzle. Now a lot of people seem to blow this puzzle, this piece of the puzzle out of proportion,  this is just part of estate planning, there are other issues, many other issues and we’re going to be going over those in the future. We’re gonna be doing monthly webinars and we’ll cover other things like gifts, wills, trusts, healthcare proxies, MOLSTs, even MassHealth applications and will contests. But right now we’re going to deal just with, What is probate? And so, The first the first step in this process is to talk about, What is probate? How do you avoid it?

So, If you go through a probate it’s because an asset doesn’t have a path on it. What I mean by that is when you’re gone does someone else have the ability to get at the asset? If so there’s no need for probate. It’s necessary to get the asset from you to someone else. For example, this pen right here, if I die and this is all I own well my wife can just come and pick it up. There’s no bureaucrat getting in the way. But if this were registered somewhere with some governmental bureaucrat, then she couldn’t get it without a process to get it to her, and that’s what probate is about it’s about putting someone in charge of getting the assets that that don’t have a path on them.

So that that leads us to, What are probate assets and what are not probate assets? Probate assets are what’s in your own name, no beneficiary, not joint, just yours. If you have something that’s joint that usually avoids probate because there’s a path on it. If you die the next person can step in and get it. If you have a beneficiary on something like an IRA or life insurance there’s no probate there, there’s a path directly to the other person, no need for probate because they already have it. There’s no need to go through probate if you have assets that have arrived somewhere else. If you have something like a beneficiary transfer on death, on a lot of mutual fund accounts and brokerage accounts, payable on death on savings bonds, that is a path. Now, if it says transfer on death to someone who’s not alive, to someone who’s not actually alive right now, then there would be probate. If you have a beneficiary, a lot of spouses have a small life insurance policy payable to their deceased spouse with no other beneficiary named. Well, if the spouse had lived, it would have avoided probate, but since this spouse pre-deceased there is probate. So, probate is just about putting paths on things. And I should point out right here that it doesn’t necessarily change the tax outcomes, how the estate tax works on whether it’s subject to estate tax – whether there’s a capital gains tax, whether there’s an income tax, that doesn’t change for the most part and for MassHealth purposes just avoiding probate doesn’t necessarily protect assets from a nursing home. So probate, like I said before is just one part of the puzzle. Leah do I see there’s a question here?

Leah: Yes we have three questions. My name is Leah Strazdes, I’m a legal assistant here at the office. The first question is, ‘If I have a will why might I need probate?’

Brian: Okay, if you have a will first of all we got to start with are there probate assets? So there’s got to be something in your name that did not go to somebody directly. If there’s no direct path then we need to probate. Well a will – how do we know that’s your last will? The probate process – the word probate comes from the word prove we have to prove. We have to prove this is your last will. You could have another will we don’t know. So, the probate court puts it through the process and essentially rubber stamps the will and says it’s valid and the person named in the will, used to be called executor or executrix it’s now known as personal representative, that person is then in charge of the estate. But, until that process goes through, the will is not the will is just a piece of paper, it has no legal validity until it goes through the probate process.

Leah: Perfect, our second question is, “If I have assets in a trust do they have to go through probate?’

Brian: No, that’s the point of a trust. Well actually, I once saw a trust that said ‘I’m putting these assets in trust for my lifetime and when I die the trust ends and goes to my probate estate’. That did not make a lot of sense. But, if the trust says who gets it the trust provides the path that avoids the probate process. So, and and by the way I should just quickly mention, just because you have a trust doesn’t mean you have assets in them. A trust, when you sign it, is an empty shell you have to fill the shell. So, just having a trust doesn’t avoid probate you have to do a lot of work to get the assets into the trust and make sure that everything all the assets you’re trying to avoid probate with are in the trust. Okay.

Leah: Our final question is, ‘Is there a simpler process than probate if you have minimal assets?’

Brian: there is a simple probate for $25k or less and a vehicle. There is a simple probate process for simple probates, but banks and insurance companies do have the option on small amounts of money to just turn them over to the family. It’s completely up to the bank or to the insurance company whether they’re gonna allow that and if they think that there’s no real risk to them and there’s nobody fighting that everybody’s in agreement then they’re more likely to let that happen. So, generally speaking you need probate if there are assets of $25k or more once you hit $25k it’s a full-blown probate doesn’t matter. Whether it’s a $26k or a billion it’s the same paperwork to go through probate.

The one problem with probate is often who gets notice. If you have minor, if there are minor children involved, if there were people under 18 or people who were disabled or incompetent, they have to get notice and that’s why it’s often good to avoid probate. But probate, avoiding probate is not a one-size-fits-all good for everybody. There can be problems associated with probate. So, When does avoiding probate cause problems? Well first of all, sometimes there’s a need for liquidity, for money, to spend money while you’re alive, you’ve done something to avoid probate. And, Let’s say you have a son and a daughter and you got money in accounts for both of them. And now, we need to pay for something, let’s say you need home care, which CD do we go into? Because, if the son’s in charge I would think he’d want to go into your daughter’s and I think he wouldn’t want to go into his and break his and disinherit himself. So, when you, depending on how you avoid probate, you might cause problems by having accounts for different people. You know, and some people have a small accounts for their grandchildren, well when we need money and we have to go close out the account we’re essentially in a way disinheriting that person from what they’re supposed to get. That creates a giant mess for whoever’s in charge at that time and whoever’s doing all that. The other problem that’s caused when you try to avoid probate is, let’s up the ante on the son and the daughter and let’s say each bank account that avoided probate each had 600 grand in there. Well, then there’s a Mass estate tax when the parent dies. Where do we get the money to pay the estate tax? Let’s say these two kids don’t get along. The son’s in charge, the daughter doesn’t want to shell out the money, now we got a battle over how do we get the money from her to pay the estate tax. So we have an estate tax in Massachusetts that kicks in at a million, your net worth of a million and once you’re over that the minimum tax is $33,200, so I’m gonna have a plan for where’s the money gonna come from. Another probate avoidance problem, just because you make something joint doesn’t mean it it’s joint for inheritance; you put someone’s name on an account that might mean that you meant it for the convenience of that person to help pay your bills. When you open an account in Massachusetts, there’s no way to designate that, so, there are arguments, there are a lot of lawsuits over joint accounts. Did you mean that to be inherited by the name on the account? Or, did you mean for them to just be there to for your convenience to pay bills while you’re alive and then to have the account split through your will later? There’s no way to know that in many cases so that causes problems, there are expensive lawsuits about that sort of thing. And then finally, making something joint with a child opens you up to any of the problems that that child might have. Well first of all, the child could be dishonest and just go and grab all the money. We’ve seen that happen the other thing is one of my clients once had a lot of money in a bank in a CD that was joint with her son; she didn’t know it but he had a mortgage there and he defaulted on it, the bank reached in and just took the CD. So, that’s a real problem she certainly avoided probate there because she didn’t have any money left after the bank was done with her. So, avoiding probate depends on how you do it, you could create a mess for yourself and for everybody else.

So on to, ‘When should spouses not attempt to avoid probate’. No I’m not a big believer in the whole ‘avoid probate at all costs everybody needs a trust’ part of lawyering that some lawyers go through. Some lawyers are out there selling trusts relentlessly.

Well, if you’re married and you own your home with your spouse and it says after your name and the deed has husband and wife as tenants by the entirety. That’s a protected form of ownership, that is really powerful. No matter what your spouse does you cannot lose your house; somebody can sue your spouse they cannot get after your house. I don’t know why any married couple would want to give that up. Especially younger people. When you take your home and do something with it, like put it in a trust to avoid probate, you lose your tenancy by the entirety and that means if one spouse is sued there’s a potential for that house to be attached and why would anyone want to incur that risk if they didn’t have to. The other reason spouses should not attempt to avoid probate is there is a tricky MassHealth, Medicaid is the federal law, there’s a tricky game involved in MassHealth planning. If you have something in your name when you die, if you’re the first spouse to die, and you leave it in trust for your spouse; that means a trust that’s embedded in your will and goes through probate, all of those assets are protected if the surviving spouse goes to a nursing home. We have a lot of clients who we intentionally go through probate because then the assets are in the trust in the deceased spouse’s will they can be used for the benefit of the surviving spouse but they don’t belong to the surviving spouse. So if there’s a nursing home stay, those assets pretty much are off the table, then MassHealth cannot count those as belonging to the surviving spouse. We’re going to go through that in a future webinar but that is, I hate to say this out loud, but, it’s a loophole you can drive a truck through in the federal Medicaid law. It’s been there since 1985 and it’s a really easy way to save assets, if you know the health of the spouses. So, those are the two reasons that spouses shouldn’t attempt to avoid probate. You know just avoiding avoiding probate loses tenancy by the entirety, loses the ability to preserve assets from a nursing home stay for the survivor. But, when is it worthwhile to avoid probate? Well first of all when you go through probate there’s a need for a surety bond and that can in some cases be expensive. That’s one reason to avoid probate. One big one, this is a big one, if you have real estate in another state that might mean you need to have a probate here and there. Just had a client in the other day, had real estate in two other states, well there would be three probates, so that means there are a lot of costs. If you can put a path on the assets in the other state or, this is one where trusts really are helpful, you put the assets into the trust that avoids probate in the other states, and so that client I just mentioned would have had a triple probate if we hadn’t done that. Another reason to avoid probate is when you have a person who might inherit or might contest your will or the problem heir, someone who’s never satisfied, they could contest your will. When you probate your will there’s a legal notice that comes out that practically tells you what steps you need to take to contest the will. With a trust or if you avoid probating some other way, the problem heir would have to come and file an initial lawsuit, have to start from scratch and try to undo whatever you did. So, that’s one, that is definitely a real reason to avoid probate when you’ve got somebody who’s potentially a problem. And the other reason, one other big reason to avoid probate is when you have heirs at law, would be cousins. All right so, probate is fairly simple when we know who your family is. Like you got children, grandchildren, I mean the forms are easy to fill out when you go off to no children but you got nephews, nieces, brothers, sisters, that is fairly easy too. But, when we don’t have any of those people and then we’re getting out to the cousins, it gets very tricky as to who inherits. And we have to find all those people; we cannot do the probate without knowing exactly who all those people are. Then we need heir finders in many cases. So, that’s somebody who doesn’t have definite close family should be doing, often, should be doing trusts.

So how much time do we have Leah? I think we we built this as a half hour but it’s, we’re in the I think we’re about 20 minutes in. We’re going to be doing these on a monthly basis they might go 20 minutes they might go 30, it’s just when we have something to say we fill the time if we don’t have if we have a very narrow topic we won’t fill the time.

Leah: We have some questions from the audience.

Brian: We do, okay.

Leah: The first question is, ‘Can you have two representatives in the probate process?’

Brian: Yes

Leah: Yes?

Brian: Yeah you could have, now, just because having two doesn’t necessarily make it easier. When you have one person that person can do something; but if you have two it’s not like either one can act they have to act together. So for example, paying the electric bill, they both have to sign the check you know so it’s not making it easier, it can be making it difficult. I once handled one estate many years ago where, when I was working at State Street Bank where there was, all three children were named as co-trustees with a bank and we could never get anything done because one of them always left the paper in his briefcase and it would take a month to get it from him. So, adding other people can slow everything down. Now, sometimes you don’t want one person running roughshod over the other and it makes sense to have two, but it doesn’t make it easier necessarily. Go ahead.

Leah: The second question is, ‘Is a 401k considered an asset?’

Brian: If you can get that money that’s an asset 401k is a retirement plan, that doesn’t go through probate because you should have a beneficiary. On that your spouse is required to be the beneficiary, unless your spouse waves it, but that that avoids probate.

Leah: And then the final question we have is, ‘What is the difference between an irrevocable and a revocable trust?’

Brian: Okay that’s got nothing to do with probate. All right, but, a trust avoids probate. Revocable is it’s yours, you can just pull it back. We’re gonna go over trusts in the future, so I’m just going to give a general answer to that. Irrevocable means you cannot change it. Now, there are various types of irrevocable trusts, sometimes you can change parts of it. But, revocable doesn’t do anything other than avoid probate. it’s still, it doesn’t change any tax consequences and it doesn’t change any MassHealth consequences for a married couple it can actually make the MassHealth process worse in some cases by having a your home in a revocable trust.

Leah: Okay and we just got one more question in, ‘Does the size of one’s estate dictate the cost of probate and if so what are the typical costs?’

Brian: As I said before, once you hit $25k it’s the same, same forms, same process, the costs could be, there’s a surety bond sometimes required depending on what type of probate we’re dealing with. The cost of the bond is reflected by how much is there. If you’re doing accountings, probate court accountings, the accountings are based on the filing fee of the accounting, is based on how much is there too. So, large estates going through probate can cost more but mostly on the filing fee and surety bond end of things.

So these are, as you can see on the screen, we’re kind of closing out, and is the fear of probate being exploited? I mean I’m telling you some negatives about probate, but I think there are people out there who are using it to sell. Like, I get these financial seminar invitations at home all the time, and they always sort of hint at, ‘well there’s a way to make it easier on your children to avoid probate’. And what they’re doing is they’re selling an annuity in many of these cases and if you’re going to be doing estate planning, thinking about probate, I don’t think you should be talking to your financial planner about that you should be talking, it should be part of the overall estate plan, it should be your estate planning attorney that you’re talking about those things with. There are also people out there selling trusts. There are seminars, there’s somebody out there that I see on occasion that sells all the negatives of probate, selling trusts, has a book that is offered to you. You go to the free seminar you get a free book and inside the book is a coupon worth $500 off. So, something’s getting sold there, and I’ve had clients who’ve gone to things like that and they’ve been told if you put half down now we’ll get the job done. And it’s cookie cutter, it’s one size fits all for a lot of these people. I’ve also had clients who’ve gone to these things who’ve been quoted enormous prices for fairly simple documents. So, if you go to something that’s free and you wind up with a discount at a future meeting to talk about your estate plan; then maybe you’re being sold something. So I’m gonna, I’ve talked about probate so far as though there’s only one type of probate. There’s more than one type of probate. And, next time we’re going to be going over the other types of probate. The other, probate court also handles probates while you’re alive, and those are known as guardianship and conservatorship or some people in Massachusetts call it conservatorship. So, next next month we’re going to have a lawyer who specializes in this field talking with me about the Britney Spears conservatorship. Could that happen to you here? What would it have looked like here? But, guardianships and conservatorships, those are the probates that you should try your best to avoid. Those are the most, they’re much more expensive than the post-death probate. Guardianship is layers, the initial petitioning gives you the some powers but if you need other powers to do like placing someone in a nursing home, giving them certain kinds of medications, you need extra hearings and extra layers on top. With conservatorship, there’s always a surety bond needed and usually it’s a corporate surety bond and it costs a lot of money annually. There is a lawyer appointed sometimes for the, as a fact-finder for the judge known as a guardian ad litem, there’s a lawyer appointed for you, and I once had a conservatorship that a wife, in a second marriage had to do for her husband because he had $17k in a checking account. Well, there were other assets in a trust that the mother had set up, but, so, we wound up for over $17 grand with me, the court appointed a guardian ad litem, a fact-finder for the judge, court appointed to him a lawyer, and then the kids from the prior marriage, who were in their early twenties, they hired a lawyer too. So, we had four lawyers in a case about seventeen thousand dollars. You can imagine that that money went fast. Guardianships and conservatorships with proper planning can be avoided, that’s the type of probate to avoid. So, next I hope you think, consider, joining us next month when we talk about you know the Britney Spears conservatorship and what what it would look like under Massachusetts law.

Leah: We have one final question from the audience, ‘What are the basic estate planning documents that every husband and wife should have completed for peace of mind?’

Brian: Okay so I was just talking about guardianship and conservatorship. So, everybody should consider a health care proxy, a power of attorney, a HIPAA authorization which gives access to medical information. Not everybody needs a trust. Not every spouse needs a will because usually they have all their assets joint or beneficiaried to each other. There are other kinds of documents, trusts, depends on the estate, depends on how much you’re worth, and what your concerns are; it depends on who your family is. There’s no way to go beyond that as to whether a will is good enough whether you should have a certain type of trust. But, the basics everybody should have power of attorney, health care proxy, those those are the ones that avoid these other types of probate, which are guardianship and conservatorship. Okay. Thank you all for joining, we’ll be back with another webinar next month and hope to see you there. Thanks, bye.