It is Important to Know the Difference Between Probate and Nonprobate Assets

Mortgage concept by money house from the coinsWhen it comes to estate planning, many people think that simple is better and they might be under the assumption that a will is all they need. However, people might be under the impression that wills can avoid problems on death because the will outlines who gets the assets. However, what many people don’t realize is that wills only govern the assets that go through a court proceeding referred to as probate.

There are some assets that are not included in the probate process. This is the distinguishing factor between non-probate assets and probate assets. Your wills govern probate assets but the will does not govern any assets outside of probate. The title to the assets or the way in which you own them determines whether or not probate is required.

A probate proceeding in Massachusetts can include paying off any taxes and debts, appraising the property and distributing any remaining assets along with the will’s provisions. In the event that there is no will, the proceeding is called administration proceeding and state law determines how your property is distributed. Probate assets are those items that are in your name alone when you pass away. If it’s not quite clear who the beneficiary is, the asset will go through the probate process. The court has to first determine that the will is valid in order to do this.  Depending on circumstances, the probate process  may be costly. Typical charges to the estate are legal fees, court costs and executor commissions. If there is a will contest or heirs can not be found, the cost of probate increases significantly.
Non-probate assets are the result of forms you signed and filed with different companies. First of all, your life insurance policy, bank account, annuity or IRA will have a beneficiary designation – and alternate beneficiary – that you signed and filed with the company. Assets that you own jointly with the right of survivorship mean that when you pass away, the asset transfers directly to the beneficiary you have named. Consult with an experienced Massachusetts estate planning attorney to learn more about the difference between probate and nonprobate assets, and whether nonprobate assets make sense for your planning.

Lessons In Estate Planning From Deceased Celebrities

Many of us think, “If I was rich and famous, I wouldn’t have a care in the world.” However, as the recent passing of two Hollywood stars shows us, when it comes to estate planning we all grapple with similar concerns and hopes for our loved ones.

Philip Seymour Hoffman won a Academy Award for...

Philip Seymour Hoffman (Photo credit: Wikipedia)

Consider the case of Phillip Seymour Hoffman, who recently died of a heroin overdose. His plan contained a provision requesting that his son, Cooper Hoffman, be raised in or near the cities of Manhattan, Chicago, or San Francisco. Why would he include such a provision? Hoffman’s Will stated, “The purpose of this request is so that my son will be exposed to the culture, arts and architecture that such cities offer.”

Phillip wanted to pass some of his values onto his son, and used his estate plan to make it possible.

Paul Walker

Paul Walker (Photo credit: Wikipedia)

Or consider Paul Walker, the star of Fast & Furious who was recently killed in a car accident. He left his entire estate to his daughter, Meadow, with the provision that she cannot access the money until she becomes an adult. Paul also named his mother, not Meadow’s mother, as Medow’s guardian. Paul apparently felt more confident that his mother would be the better guardian and manager of Meadow’s newfound wealth.

Naming guardians, teaching our children proper values, determining “who gets what, and when.” These are difficult issues that all families face, not just celebrities.

I welcome the opportunity to help you make decisions like these and plan for whatever the future holds.

Why Create a Trust?

Due to changes that limited federal estate tax to only high valued estates, many people believe there is no reason to set up a trust to guard their assets. However, a recent article outlines five reasons that trusts might be the right choice even for smaller estates:

    1. Holding assets in trust may allow estates valued at over 1 million dollars to avoid significant Massachusetts tax liability.

    2. A trust will avoid the often long and costly, and always public, probate process, where the will, the accounting of the estate disbursements and revenue, and the probate asset inventory will all be available to the public.

    3. Allowing assets to be distributed through a trust will give parents the ability to moderate how much access a young child has to a house, life insurance, retirement assets, or cash, so that the children are not put in a position to misuse estate assets. It may also help where there is concern over poor money management skills, business liability, or creditor problems.

    smiley mom and daughter on grass

    (Photo credit: MyTudut)

    4. A child’s eligibility for public benefits can be affected if the child receives an inheritance. Whereas, holding assets in trust for the benefit of the child will help ensure that the child remains eligible and that resources are there to provide care over the long term.

    5. A revocable trust also gives a person the ability to determine how he or she will be cared for and how decision will be made in the case of incapacitation.

How to Avoid Probate

Many people want to avoid Probate Court oversight of the transfer of their estate. In Massachusetts, all the Probate Laws changed on April 2, 2012. Although the new probate laws were supposed to make the process easier, faster, and cheaper, it seems to have had the opposite result. I am sure that in a year or two the process will be much easier, but even so, many clients still will want to avoid Probate entirely.

The probate process does not have to be difficult or expensive, but for some clients, it is something they wish to avoid. “What is Probate?” (This was written in 2010, before the laws changed. I will be updating this next month.)

There are several categories of assets that will be transferred without the need for probate.

  1. Beneficiary Designations: These types of assets – IRAs, 401Ks, Life Insurance, Annuities, – will be given to the person or people designated on the account at the death of the account owner. There are two things to keep in mind when designating a beneficiaries: 1) Make sure you have designated BOTH primary and alternate beneficiaries; and 2) Make sure the designations reflect your actual distribution wishes. For example, if you want the account to be distributed to all of your children, make sure that they are all listed as beneficiaries. Particularly with retirement funds, there will be income tax consequences if one child is named, but then wants to share the funds with other siblings.
  2. Jointly Owned Assets: Any asset on which there is a joint owner will automatically belong to the survivor. For some married couples, this ease of transfer at the death of the first spouse makes sense. However, for single people, jointly owned assets may not reflect their distribution wishes. For example, if there are two children and one child is added on to bank accounts, that child will become the owner of any account on which they are named. It may be possible to overcome this presumption of ownership by designating the account as a “Convenience Account” at the bank, and by including a statement in your Will that these joint accounts were never intended to belong to the surviving owner.
  3. Create and FUND a Trust: By far, the best way to avoid having your estate go through the Probate process is to establish a trust. A trust replaces a Will as the primary after-death transfer document. BUT, the second step – after creating a trust – is to make sure that the proper assets are re-titled and placed into the trust. That step is called “funding the trust.”

Only those assets actually in the trust at the time of death pass without Probate. If an asset is not re-titled into the trust, it will have to go through Probate. Since most people want a trust to avoid Probate, the planning is incomplete without this final step.

How an asset gets placed into the trust depends on what it is. For example, re-titling a bank account can usually be done easily by going to the local branch and telling them you have created a trust. The bank may want a copy of the first and last page of the trust, but will then simply re-name the account. The account is now in the trust. For real estate, a new deed should be prepared transferring the property to the trustee of the trust. That deed is then recorded at the proper Registry of Deeds – and the real estate is in the trust.

As a general rule, retirement accounts should be left alone. Do not make the trust the beneficiary of retirement accounts without first consulting with your attorney and tax advisor.

 Additional Information:

Most Common Mistakes in Naming Beneficiaries, Wall Street Journal (2011)



Estate Planning and Elder Law Newsletter: Estate Administration

Every month I send an E-Newsletter that has articles on estate planning and elder law topics. If you would like to subscribe to this E-Newsletter please feel free to sign up.

This months topic is Estate Administration. When someone passes away, the executor or successor trustee responsibilities start. Their primary job is to protect and manage the assets in the estate, and to then distribute according to the written instructions you have left in either your Will or Trust.

To accomplish this, it is extremely helpful if the executor or trustee is able to quickly locate the estate assets. A list of current bank accounts, brokerage accounts, retirement fund information, life insurance policies, and a list of advisors will help the fiduciary get started. No values need to be listed, since that can fluctuate. A simple list of assets and the institution where they are located will be enough to put them on the right road.

For my personal clients, I provide an Organizer for their Estate Binder that they can complete and update as their holdings change. If you would like a copy of this Organizer, please email me and I will be happy to send one to you.[email protected]

Additional Information:

The Duties of an Executor in Massachusetts: Four Things You Need to Know

NY Times Article Estimating Hundreds of Millions of Dollars of Life Insurance Goes Unclaimed

Grounds for Challenging a Will in Massachusetts

A lot of time and thought goes into the preparation of a Will, and when someone signs it, they expect that the document will stand as their last instruction for how their assets should be distributed. They have every right to assume this. However, sometimes a challenge made be made to the Will. Although the vast majority of Wills presented to the Probate Courts in Massachusetts are accepted and the directions followed without any disputes, occasionally a Will is contested.

In Massachusetts, Will contests fall into three general categories: Mistakes, incapacity of the testator, and fraud or undue influence.

1. Mistakes In Execution or Mistake By The Testator

Mistake In Execution

This challenge is based on the document form. The Massachusetts statute that controls Will executions, M.G.L. ch. 19oB, sec 2-502, provides that a Will must be in writing, signed by the testator (or by someone else at the specific direction of the testator), and signed by two or more competent witnesses.

The possible mistakes can be: the Will was not signed by the testator, no witnesses signed the Will, the Will is not in writing, or the testator did not know he was signing a Will.

Any bequest to a witness, or the spouse of a witness, who is also a beneficiary under the Will is void, unless two other witnesses also sign. M.G.L. ch 190B, sec 2-505.

Oral Wills – called Nuncupative Wills – are allowed in very limited circumstances.

Mistake by The Testator

This challenge is based primarily on the contents of the Will. A challenge may be based on the fact a child or other natural heir was omitted from the Will. This type of challenge may be avoided by making it clear in the Will that anyone omitted was omitted intentionally.

The person presenting the Will to the Probate Court has the burden of showing the Will was properly executed. This is usually easily established by the execution language at the end of the Will in which the executor declares that they have signed the document in front of witnesses, acknowledge that the document is their Will, and that they have signed it voluntarily. The witnesses then sign an Affidavit stating they observed the testator signing the Will.
2. Incapacity

This challenge is based on the mental condition of the testator. The person contesting the Will charges that the testator was not of sound mind when the Will was exexuted. The legal presumption is that the testator was of sound mind at the time of execution, and anyone contesting this has the burden of proof.

A person signing a Will must be competent at the time of execution, understand what is in their estate, and know who would be the natural heirs to that estate. This does not mean the testator must follow any distribution plan, it simply means the testator must be aware what they own and who would be in line to receive their estate.

An interesting case discussing that the timeframe for capacity is at the time of signing, and that someone may lack capacity at other times. O’Rourke v. Hunter, 446 Mass. 814, 827, 848 N.E. 2d 382, 391 (2006).

3. Fraud and Undue Influence

This challenge is based on the contents of the document, the behavior of third parties, and on whether the testator signed the Will with a full understanding of the circumstances. These are actually two separate challenges.

A fraud challenge maintains that the testator was deceived prior to signing the Will. Although the testator acted freely, a misrepresentation led them to sign a Will they never would have signed had they known the truth.

An undue influence challenge maintains that the testator’s own free will was overcome through coercion, and the resulting Will benefits the person who applied that pressure. There are many cases in Massachusetts that have examined undue influence claims, and the courts look at variety of factors to determine if a Will was the result of undue influence. Some of the important factors mentioned in the cases are: the age and health of the testator, the relationship of the testator to the person exerting pressure, and the opportunity of that person to exercise pressure.

One of the earliest cases discussing undue influence:
Neill v. Brackett, 234 Mass. 367, 369, 126 N.E. 93, 94 (1920).

The person challenging the Will has the burden of proving that the Will was the result of fraud or undue influence.

The Duties of an Executor in Massachusetts: Four Things You Need to Know

You have been named as an executor in a Massachusetts Will, and the person that made the Will has passed away. What are you supposed to do now? Adding to the grief over the loss of a loved one, the job of an executor may seem overwhelming. As the nominated executor, you have certain obligations to the heirs of the estate. There is no requirement that the nominated executor hire a Massachusetts probate attorney, although most nominated executors are more comfortable doing so.

Here are the basic steps that may help you understand the process and your job as the executor.

1. Getting Legally Appointed. A person named in a Will as executor is only nominated to be the executor. Until they are appointed by the probate court, the executor has no legal authority to access the estate of the deceased. For the executor to become legally appointed, the original Will, certified death certificate, Petition for Probate, Bond form, and Military Affidavit must be filed in the appropriate probate court. The Massachusetts Probate Forms may be found here

If the nominated executor does not live in Massachusetts, a Massachusetts resident must be appointed as the local Agent for the estate. If the executor hires an attorney, the attorney may be the local agent.

A copy of the death certificate and a copy of the Petition for Probate must be sent to the Office of Medicaid. The Office of Medicaid will check to see if the deceased was receiving Medicaid (MassHealth) benefits, and if so, will notify the executor that the state will make a claim for recovery of the funds.

Estate Recovery Unit
P.O. Box 15205
Worcester, MA 01615-9906

It generally takes about six to eight weeks from the time the papers are presented to the probate court to the time the executor becomes legally appointed. During that time, the executor has very little actual power over the assets of the decedent.

2. Protecting and Collecting the Estate: The executor’s primary job is to protect the property of the decedent for the benefit of the takers under the Will. After the executor is legally appointed by the probate court, they may order court certified copies of the appointment. This certified copy is the legal proof of appointment that most banks and brokerage firms request when the executor attempts to collect the assets.

After the executor has identified assets of the estate, it is usually advisable to start collecting them into a single “estate account.” This estate account may be a checking account, savings account, or a combination of both of these. The executor should be the only signatory on the estate account. The estate account will need a tax identification number assigned by the Internal Revenue Service. Neither the social security number of the decedent nor the executor should be used. IRS instructions on how to apply for a tax identification number.

If the decedent had an investment account, the executor should discuss with the advisor if any of the holdings should be redeemed for cash. Any cash from the sale of holdings are added to the estate account.

The estate account is used to pay any outstanding (undisputed) bills and maintain real estate.

3. Selling Real Estate: Once the executor is legally appointed, they have full authority to sell any real estate. If the real estate is sold, the proceeds from that sale are simply added to the estate account that has been set up.

4. Traps for the Executor: Most executors take their jobs seriously, and will do their best to accomplish what the decedent directed. There are, however, some common missteps even the most well-intentioned executor may make.

a. Co-mingling funds: The executor must never combine their own personal funds with the estate funds.

b. Making Early Distributions: Despite pressure from beneficiaries, the executor must be careful to make sure the estate has sufficient funds to pay any legitimate expenses and debts of the decedent. Creditors have one year from the date of death to file a claim against the estate. If there are no funds remaining, because the executor has distributed the money too early, the executor is personally responsible for paying that debt.

c. Not Following Direction for Personal Property: If the Will directs certain items of personal property be given to specific people, the executor must follow that direction. If they do not, the designated beneficiary may file suit against the executor.

d. Not Getting Receipts For Partial Distribution: If there appear to be sufficient funds, the executor may decide to distribute a portion of the estate before the one-year mark has passed. It is important that the executor have each person sign a receipt for the early distribution. This form should have a legal promise that the beneficiary will indemnify the executor should any creditor make a claim.

The Massachusetts Probate Process

Probate is simply the court process by which the terms of a Will are carried out by the person named as Personal Representative in a Will. The procedures discussed below are applicable for Massachusetts Estates. Other states may follow different steps.

Personal Representative Not Authorized to Act Until the Probate Court Accepts the Will and Appointment

Although a Will names a person as Personal Representative, until the proper procedures have been followed, the probate court considers the person named as merely nominated as Personal Representative. In order to have the nomination accepted by the court, certain documents must be filed and procedures followed. Once these papers and procedures have been followed, the Personal Representative is officially appointed and may start to act on behalf of the estate.

Getting Probate Started

The first step in the Probate process is to file the original Will, death certificate, Petition for Probate, Bond Application, and Military Affidavit in the local probate court. Generally, the appropriate court is the Probate Court for the county in which the decedent resided. Filing fees vary depending on which probate process is being initiated. This fee must be paid at the time of filing. Massachusetts Probate and Family Courts Filing Fees

A copy of the Petition for Probate and a copy of the death certificate must be sent to the Division of Medical Assistance, PO Box 15205, Worcester, MA 01615.

Once these papers have been filed and the filing fee paid, the court will send a Citation to either the attorney who opened the probate file, or the named Personal Representative if no attorney has been used. This citation is the legal notice that is published in the newspaper. The court will direct in which newspaper the Citation must be published, and a copy of the citation must also be sent to the heirs listed in the Petition for Probate.

The Citation has the date by which anyone who wishes to object to either the Will or the appointment of executor, must file their paperwork in the Probate Court. Unless an objection is filed, after the date specified in the Citation, the Will is considered accepted and the Personal Representative appointment becomes official. Court certified copies of the Personal Representative appointment may be ordered from the Court. Each certified copy is $25.00. Most financial institutions will want to see an original certified copy of the appointment of the Personal Representative, but most will be happy to make a copy and return the original.

For the complete statutory requirements for probating estates, see M.G. L. ch. 190B

Massachusetts Probate Court Forms