Clients often arrive at my office with a great deal of misunderstanding in the area of Wills, Trusts, Estates, Lifetime Transfers and Probate. Most people get such information from family and friends, whose own understanding may be less than clear. In addition, the great many resources available in this area can be highly technical and involved, making the most simple concepts rather difficult to understand. This article is designed to help provide some of the most basic principals involved in Wills, Trusts, Lifetime Transfers and Probate. If you have been considering creating or changing such instruments, some very important issues should be considered.
One of the most common misconceptions is that, when we pass away, our assets will transfer to loved ones automatically, with no need for official process or paperwork, either just because we are married, or because we have children or other close relatives. Similarly, people also often believe that our asset pass automatically if we have a Last Will and Testament. This is not so in Massachusetts, unless the assets are jointly owned with the surviving loved one(s), or unless a "Pay on Death" feature or Death Beneficiary form has been completed (such as with Life Insurance.) Although some states may provide for the spouse, children or other family members to automatically receive a loved one's assets upon his or her death, that is not the case in Massachusetts.
A general rule might be stated as:
Unless an asset lists, as a joint owner or beneficiary, the name of a surviving person or "entity" (i.e.: a Trust), then some Probate Court process must be completed in order to pass that asset along.
That statement is generally true, whether there is a Will or not.
Alternatively, if all of one's assets are held in the name of the deceased person and the name of at least one other living person (or "entity"), then that living person often can, with minimal paperwork, just become the sole owner*, without the need for Probate Court**. However, if even a single asset was held in the name of the deceased person alone ("solely owned", without any other name), Probate applies. This is true, even if all of the other assets were jointly held with a surviving spouse or other loved one. And again, having a Will in place does not prevent this outcome.
It is important to realize that a Will does not keep an estate out of Probate. Instead, a Will can be seen as a set of "instructions", to the Probate Court, for the Probate process. The Probate Process itself can be rather involved, so again, the advice of a qualified attorney is highly advised for further understanding.
Avoiding Probate using Joint Accounts and Lifetime Transfers
Often, one of the most common ways to prevent the need for Probate, is to add the name of your spouse or other adult family member or
WHY A TRUST?
friend, onto each and every asset***. This is often considered by single persons, and by the survivor of two spouses, after one has passed away. Then, after you have passed, the asset will remain in the joint owner(s), without the need for Probate. (Though some paperwork is generally needed.) However, adding a loved one's name to an asset may have unintended results. A family member whose name has been added to an asset could likely claim ownership of that asset upon your death, even if you have a Will to the contrary. Other family members might then feel "cheated" out of a share of your estate. This tends to happen more often than people realize, as they often add only one family member's name, for the convenience of paying bills, etc.
This can result even when there is a valid Will, since the Will acts only upon those assets solely in the deceased person's name. So, if you add
loved ones' names to your assets, or list them as beneficiaries, those assets will usually pass straight to those persons named, in effect, bypassing the Will. If you intend other family members to receive a share, but do not add there names as well, they might never receive anything of that asset. Even in a court a court action to secure their rights, they might not be able to prove the asset is to be divided.
This outcome might be avoided by adding multiple names to the asset. However, it is important to realize that, whenever the name of another person is added to an asset, the asset can be susceptible to that person's creditors or lawsuits. The more names you add, the more risk of such an occurrence. If you add one or more person's names to a bank account, and any of them get sued, suffer major debt or become divorced, then your asset, jointly listing their name, might be highly at risk.
Other consequences might result from adding names to the ownership of an asset. These might include being disqualified for a discount on taxes or utility bills, especially if you receive a senior or income-based discount. Also, when real estate is put into joint names, insurance policies and other services likely need to be changed to comply with the new Deed****.
Another common method for avoiding Probate, is to transfer assets into some form of "Trust". Assets held in Trust usually pass to beneficiaries, without the need for Probate. A Trust is an "entity" created under law (generally with a written document), which holds ownership to assets, to be used for the benefit of named "Beneficiaries". The Trust is administered by one or more persons called "Trustees".
Trusts can be used to avoid Probate, save Estate Taxes, or put assets under the control of certain trusted individuals. Anyone can create a Trust, regardless of economic status, and a Trust can be crafted to address a wide variety of issues or concerns. Trusts can also be established through a Will. These Trusts, however, fall under the jurisdiction of the Probate Court, and do not help avoid Probate. Sometimes, Trusts built into Wills can even add extra complication to the settlement of an estate.
Your legal adviser can assist in determining if a Trust might best serve your needs, and what type of Trust might be most appropriate.
Wills, Lifetime Transfers
*The surviving owner will usually need to provide an official Death Certificate and complete certain forms to complete a name change into the survivor's name alone. Please seek professional legal advice for assistance.
**Unless the asset is held as "Tenants in Common". Please seek professional legal advice regarding this form of ownership or if you are unsure.
***There may be gift or capital gains tax ramifications to you or the family member that you add as owner. Both you and that person should understand these concerns before a transfer is made. Please seek professional legal advice for assistance.
****Changing or adding one or more names to the ownership of an asset that is insured against loss, without informing the insurance company could result in denial of coverage.
This article was written as a very basic overview to begin your exploration into the extensive area of estate planning and should not be relied upon for accuracy, or as legal advice. There are a wide variety of planning tools, including different types of Wills and Trusts, and the law surrounding them can be extremely complicated. A full treatment of the matters discussed hereunder cannot be fully addressed under this very basic article. For a more detailed discussion and further understanding, please contact us for a confidential and personal consultation. We look forward to assisting you in achieving piece of mind that your planning arrangements are thoughtfully and professionally complete.
Edward D. Pollard, Esq.