ESTATE PLANNING (WILLS, PROBATE AND LIVING TRUSTS)
Montaigne
If you haven’t yet noticed, we are fans of Montaigne. Here is a bit of what he had to say about this subject back in 1580 or so:
For my part, I think that it is cruelty and injustice not to welcome them (children) to a share and partnership in our property, and as associates in the knowledge of our domestic affairs, when they are capable of this, and not to diminish and restrict our pleasures to provide for theirs, since we engendered them to this end. It is an injustice that a father, old, used-up, and half-dead, should enjoy alone, in the chimney corner, wealth which would suffice for the advancement and support of many children, and should let them in the meantime, for lack of means, lose their best years without being brought into public service and to men’s knowledge.
. . .
But a father weighed down by years and ills, bereft by his weakness and lack of health of common association with men, wrongs himself and his kindred by fruitlessly sitting on a great heap of riches.
. . .
This does not mean that we thus give them a bond which we can never revoke: I would give them –I, who am in a position to play that part–the enjoyment of my house and of my property, but with liberty to think better of it, if they should give me occasion. I would give them the use thereof because it was no longer needful for me; and I would reserve to myself as much authority in affairs generally as I pleased, having always considered that it must be a great satisfaction to an aged father himself to put his children in the way of managing his affairs, and to be able during his life to overlook their management, supplying them with information and counsel in accordance with his experience of these matters; and himself to entrust the ancient honour and customs of his family to the hands of his successors; and thus to make himself responsible for the hopes that he may form of their future conduct.
. . .
There are people who amuse themselves with their testaments, as with apples or rods, to reward or punish every act of those who claim an interest therein (of my estate). It is a matter of too far-reaching consequence to be thus shifted about every moment, and one in which wise men establish their position once for all, having regard to reason and public custom.
Essays of Montaigne, Book II, Chapter VIII. (1925 Harvard Univ. Press)
1. General
We here at White Law Chartered did a study once upon a time of all American citizens born in the year 1800. After thoroughly examining all relevant records, we are forced to conclude that all of them are dead. 100%. No exceptions. An interesting side-note is that none of them had a chance to practice death. As Montaigne says, there are no death apprentices. We only get to do it once. We better get it right the first time.
We then turned our studies to the “when” of it, and discovered that a lot of the time, people did not know when they were going to die….that death took them by surprise. We can reasonably assume that we will not be an exception to this rule. Therefore, it is probably wise that we all spend a little time looking into what will happen when we die. Whatever we do, be it nothing, or execute a will, living trust, deed upon death, or joint tenancy deed, etc, our heirs are likely to find themselves in probate court. As will be seen, that is not nearly as bad as many would have you believe, at least where your heirs don’t put up a fight.
In fact, since people have been dying for a long time now, probate procedures are pretty streamlined. Probate doesn’t cost all that much, provided your will is clear and your heirs don’t get into a fight. It’s cut and dried. And if they want to fight, there is really nothing you can do about it. You will be six feet under or in a memory care facility. Anyone can sue anyone. The secret is to have your death/incompetence papers air-tight. If your intention is clear (no-one can ask you what you meant after you die), and your heirs are of average or better intelligence, there will probably be no fight. Most lawyers don’t like to lose. Fights, not probate, are expensive. As an example, White Law Chartered probated an $800,000 estate where total probate fees (costs and attorney fees) were less than $3,000. The heirs in that case got along. But White Law Chartered probated another estate of, roughly, the same size, where, due to some unfortunate language in the decedent’s living trust, the heirs decided to fight. In that case, our pre-and post-probate fees exceeded $100,000. His heirs would have received much more and the last few years of the his life much happier, had his former counsel not talked the decedent into a living trust. We eventually won the case, but had to go to the Nevada Supreme Court to do so.
2. Probate
Probate is the process whereby your intentions are, as expressed in your will if you have one, or presumed by the
Nevada legislature if you do not, implemented upon your death. The process, in brief, goes something like this:
2.1 LODGING
Assuming someone can find it, the law requires that the original Will (not a copy) be lodged within 30 days of your death. A person in possession of the will who does not do this is responsible for any resulting damage.
2.2 INITIAL STEPS
Someone usually petitions to have the decedent’s Will “admitted to probate.” This is accomplished by attaching the Will to a probate petition which is filed in the District Court in which the Decedent lived at his death. If there is no Will, the Petition seeks letters of administration. In either case, the process ends with someone running the show. We used to call him the Executor, or her the Executrix, but with modern political correctness, we now use “Personal Representative.”
2.3 ADMINISTRATION
After the Personal Administrator is in place, he or she goes about noticing creditors, collecting assets and paying bills. Various reports, including an inventory of the decedent’s assets and an accounting of the administration must be filed with the court, unless waived.
2.4 DISTRIBUTION
After the estate has been administered and creditors paid, the Personal Representative files for permission to distribute the assets remaining to the heirs designated in the will, or designated by the law of intestate succession, if no will. After the assets have been distributed, the Personal Representative files proof thereof, and is discharged.
2.5 SET-ASIDE
There are exceptions to every rule, it seems, and one is that if the probatable estate does not exceed $100,000 in equity, the estate can be set aside without administration under certain circumstances. The legislature is constantly tinkering with this.
2.6 SUMMARY
The probate process is normally fast and inexpensive. Those who say otherwise are generally trying to sell you something. The basic process has been being refined for centuries and we now have it down pat, more or less. The sunshine brought about by the probate process has prevented many a fraud and even more mistakes. However, if there is a fight among the heirs, you may find yourself in litigation and litigation is expensive, whether inside or outside of probate.
3. Wills
Everyone should have a Will, whether they have a living trust or not. And it should be updated every five years or so. A Will is a document that speaks on your death and not before. Unlike a living trust, which, like a corporation, can only deal with property that it owns, a well drafted Will disposes of all your property, real, personal, or mixed, separate or community, tangible or intangible, including property acquired after the will is made, and regardless of where it may be located. It can dispose of your property outright, or it can create a trust and dispose of it to the trustee of that trust, under such conditions as you dictate (for example, your Will can provide that your property, or some of it, is not to be distributed to certain heirs until they reach a certain age, or condition). Your Will can be revoked at any time, even if you have agreed not to do so, provided you are competent at the time you revoke it. However, if you do so (revoke it in breach of your agreement not to do so), the heirs under the wrongfully revoked Will may have a claim in the probate of the new Will. Any competent person can make a Will.
3.1 WILL FORM
A Will is your document. It can, within reason, contain most anything you might want it to contain: instructions to your children on how to live, instructions to your Personal Representative to read to them your favorite poem, etc. It can be short. It can be long. There are a couple of rough examples of Wills for illustrative purposes only in Forms.:
4. Living Trusts
A Living Trust is a document that speaks now, before you die. It creates legal relationships now, before you die. It can be revoked during your lifetime, so long as you are competent to do so. Be careful here as you are usually NOT the one who has the final say on whether or not you are competent. A living trust normally becomes irrevocable on your death. While everyone should have a will, the same can’t be said of living trusts.
A living trust is a separate legal entity, similar in ways to a corporation. It speaks now, unlike a will, which speaks only on death. This is not rocket science. The idea is that, like a corporation, which does not die when a stockholder dies, a trust does not die when its settlor(s) die. So, if it’s set up properly, and funded properly, and nobody fights, a living trust can usually avoid probate and sometimes guardianship. That’s a big “if.” And we say “usually” here because Nevada law allows beneficiaries and trustees of a living trust to seek to have the trust administered by the probate court under certain circumstances following death of a settlor no matter how well funded the trust might be. And guardians of the person are often necessary no matter how well drafted the living trust.
Further, a revocable living trust doesn’t save taxes; and it doesn’t protect assets from creditors. And, since you are basically doing your own probate before you die, it can be a lot of work, particularly if you are still an active player, buying, selling and the like. So, most Nevadans don’t need (or want) a living trust. Revocable living trusts are best used in cases of blended families or where the grim reaper is known to be closing in. They (and powers of attorney) are also now being used defensively, to protect the Settlor and his or her assets from private professional guardianships.
Both the downside and the upside of living trusts, of course, is that they are designed to avoid the protections of the probate and guardianship courts. With perhaps a few exceptions, that (avoiding probate and guardianship) is their only purpose. Many a widow has suffered at the hands of her advisers, following her husband’s death, for the trust process normally occurs in private, without the sunshine afforded by a formal probate proceeding.
Many a settlor has found out, when he tries to cash a check, that he has been ousted from his trusteeship by the alternate trustee designated many years ago when a long forgotten living trust was first declared. And many a beneficiary has expended funds unnecessarily in order to force a trustee to account, something that happens automatically in probate. A while back some clients brought in a Living Trust prepared by one of the local living trust mills. It weighed over four pounds. Though they had signed it several years ago, they had no real idea what it said or how it effected their lives or their estate. Sort of proved, at least to me, that living trusts are more often a better friend to the attorney than the client. But there are always exceptions. A few years back a doctor came in and told us that he had cancer and was given 6 months to live. Not all of his property was in Nevada. In fact, he had some personal property titled in a foreign country. We set up a living trust. The doctor and his wife were co-settlors, co-trustees and co-beneficiaries. Funding the trust took us almost the full 6 months, but, before the doctor died, all their property had been conveyed to his trust. When the 6 months rolled around and the doctor died, the trust was not really affected. Rather than two trustees, it now had only one (his wife/widow). After a respectful wait of a couple of months, the wife, as trustee, conveyed all the property to herself, free of trust. There was no probate.
5. Living Will
More important, perhaps, than any of the foregoing is the Durable Power of Attorney for Health Care, sometimes called the “Death Power.” This is a statutory form, easily available, and basically does two things: First it tells your treating physicians that if you are in a state where you cannot make decisions on your own, this or that is what you want them to do. For example: Either resuscitate me or Do Not Resuscitate under conditions which you specify. Other details are found in the Forms. The other thing most standard Death Powers do is appoint a trusted person to advise your doctors if they have questions. For example, under what conditions are you to be force-fed. If Terri Schiavo had executed a Death Power, her family would have avoided much misery and more expense. There are other, similar, forms which perform similar functions. See Forms