“Mom’s (or Dad’s) will says I get everything. I took the will to the bank. Why won’t they give me my money?” We get this question all the time. We heard it again this week. What many beneficiaries do not realize is that a will has no power or authority unless and until the will has been accepted and admitted by the probate court AND a personal representative has been appointed by the probate court to carry out the instructions in the will.
When you have a will, it only takes effect after your death. This is because a will is a death instrument. During your lifetime, it does nothing and has no authority. You have to die before the instructions in your will can be followed. There are two other things that you may not know about your will.
Firstly what you may not realize is that your will in and of itself does not give anyone the authority to transfer assets upon your death. A will is nothing more than a set of instructions. The two key instructions in your will are who gets what and who is going to make it happen. The person whom you name to make it happen is called your personal representative. The old terms for personal representative were executor or administrator.
A will has no effect without the probate court. Only after probate court accepts and admits the will and appoints the named personal representative, can your personal representative act on behalf of your estate. After probate court appointment, your personal representative has the authority to handle your assets and make distributions.
The second thing that you may not realize is that joint ownership and payable/transfer-on-death beneficiary designations bypass your will. Another question we regularly get in our office is: “Dad’s will says us kids get everything, but evil step-mom put her name on all of Dad’s accounts. What can we do?” Often there is very little that can be done.
Your will only governs assets or property that are just owned in your sole name. When you have assets or property that are jointly owned by others or have a payable/transfer-on-death beneficiary designation, your will does not control them.
With joint property, your surviving joint owner becomes the owner of the property after your death. Similarly, with payable/transfer-on-death beneficiary designations. Upon your death, the person whom you designate, becomes the owner of the property. So basically, joint ownership and payable/transfer-on-death beneficiary designations trump your will.
To start the probate court process, your personal representative files your will with the probate court along with your death certificate and a number of other completed court forms. The court then, with or without a hearing, admits your will and appoints your personal representative and issues letters of authority. These letters of authority give notice to all the world that your personal representative now has the legal authority to handle your assets.
Once appointed by the probate court, your personal representative has to notify all known creditors about how to file a claim against the estate and publish a notice to creditors in the newspaper for all unknown creditors. Your creditors generally have four months from the date of publication of the notice to make a claim against your estate.
I call this after-death probate process the lawsuit that your family files against itself, to protect your creditors. Because who gets paid first? Your creditors. And your number one creditor is the probate court. There is a filing fee for starting the probate court process. Then there is an inventory fee paid to the court which is calculated based upon a percentage of the value of the estate.
After the court is paid, the funeral bill gets paid. Then come administration expenses, including legal fees. Once the attorneys get paid, then your personal representative can pay the rest of your creditors. After all your creditors and estate expenses are paid, then your personal representative can distribute what’s left of your assets in accordance with the instructions that you leave in your will.
After everything has been distributed, your personal representative can then file to close your estate. Your personal representative cannot file to close the estate any earlier than five months after the court appointment of your personal representative or four months after the date of publication of the creditors notice, whichever is later. Once your personal representative files to close the estate, it usually takes another thirty to sixty days before the estate is officially closed.
Probate is fully public. The probate court files are generally considered public records. Anyone usually can go down to the probate court and review your will and the contents of your probate court file.
The probate court process has been streamlined over the years and is nowhere near as burdensome as it once was. However, probate takes time and result in considerable legal fees. That’s good news for lawyers.
Even simple estates can take the better part of a year to complete. We have clients come in saying they have a simple estate. However, our definition of a simple estate is often very different than what our clients believe is simple. A simple estate to us is an estate with a bank account or two, maybe a retirement plan, a home and no more than two or three beneficiaries who hug when they greet one another and sing Kumbayah together. Anything other than that is not simple.
And probate can be expensive. I did a survey not too long ago of probate attorneys in Michigan and across the country. The most quoted probate costs that I found was 5%-10% of the value of the gross probate estate. These quoted costs included not only legal fees, but all probate expenses such as court costs and personal representative fees. By far the largest costs in a typical probate estate are the attorney fees. So a $500,000 estate can cost $25,000 to $50,000 to administer after a death. I have seen probate costs in some instances of 20% or more of the value of the gross estate.
Many do-it-yourselfers attempt to avoid probate by using joint ownership or payable/transfer-on-death beneficiary designations. We see these plans backfire all the time and end up in probate court. We only recommend using joint ownership or payable/transfer-on-death designations as your exclusive estate plan if you can guarantee that none of your joint owners or beneficiaries is a minor, gets divorced, gets sued, gets greedy, gets sick, or dies in the wrong order. And of course, you can’t.
One of the most effective tools to avoid probate is a fully-funded trust-based estate plan. Trust funding is completely and correctly designating your trust and individuals as owners, beneficiaries and insured parties of your assets. Basically, it’s putting your stuff in your trust during your lifetime.
Although a fully-funded trust-based estate plan is initially more costly to set up than a will-based estate plan, the administration of a trust-based estate plan after death is usually substantially less than the administration of a will through the probate court process. It has been our experience in our office, that for our fully-funded trust-based estate plan clients in our annual updating program, the overall costs of their plan, including initial trust set up and funding, annual updates, trust disability administration and trust death administration, all together, are typically less than the 5% that is the low end for just probate death administration of a will-based plan. It’s like the old Fram oil filter commercial, “You can pay me now, or you can pay me a lot more later.”
With proper planning, you can stay in control while you are alive and well, plan for you and your loved ones in the event of your mental disability, and when you are gone, give what you have to whom you want when you want the way you want, all at the lowest overall cost to you and your loved ones.
By Matthew M. Wallace, CPA, JD
Published edited September 24, 2017 in The Times Herald newspaper Port Huron, Michigan as: Wills won’t work without probate