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Avoiding Probate Court by Funding Your Revocable Trust

Every estate plan should include a Last Will; however, to avoid probate administration after your death, all of your assets must pass to the beneficiaries without looking at the Will. If the Will needs to be consulted, then it must be done through the Probate Court – a public, and sometimes costly and time-consuming, process. Avoiding probate can be done with some relatively simple planning that might include joint ownership, beneficiary designations or a trust.

It is not uncommon to have a revocable trust as part of an estate plan, but what is common is the failure to “fund” that revocable trust during lifetime in order to avoid probate court administration, not only after your death, but also during your life should you suffer incapacity. Simply signing a revocable trust as part of your plan is not enough. You have to take the next steps to fund your revocable trust by transferring the ownership of certain assets to the trustees. This is a necessary even if you are transferring to yourself as the trustee.

For example, John and Mary Doe set up a revocable trust as part of their overall estate plan. After signing the trust, they take the next step of transferring their home to the trust by signing and recording a deed from themselves individually to themselves as trustees (as well as a new Homestead Declaration for their Massachusetts’ home). If John suffers from incapacity in the future, then Mary (as the remaining trustee) will have the authority to sell or otherwise transfer the home without John’s signature, and she will not be forced to seek a guardianship over him through the probate court to do so. Also, on the death of both John and Mary, their children will inherit the house without the need to go through the probate court, saving time and money.

Although every situation is different, and your attorney should advise you with respect to each specific asset that you own, generally speaking real estate, non-retirement investment accounts, shares in family-owned businesses and bank assets can be transferred to your revocable trust to avoid probate. There is always an exception to the rule, and retirement accounts are that exception, as they are not transferred to trust during the lifetime of the participant, and they require special trust provisions if a trust is going to be the designated beneficiary.

Also, keep your revocable trust in mind when you are acquiring new assets. If you acquire an asset directly into the trust (have the trustee be the purchaser of the vacation home or the stocks), then you eliminate the need to make a subsequent transfer into the trust. As an aside, if you are purchasing real estate with the help of a lender who refuses to loan to a revocable trust, you might consider another lender that is more flexible.

If you have not funded your trust, now is the time to do so. Please do not hesitate to contact me to discuss further what assets should be in your trust and how to make the transfers.

Scam Alert – Copy of Your Deed and Other Real Estate Matters


Please be aware that a solicitation from any company offering to obtain a copy (certified or otherwise) of your deed for you for a fee is a scam.  If I have assisted you with the transfer of your property to trust or otherwise, then I have provided you a copy of your deed and retained a copy for my files.  If you need a copy of your deed for any reason, then it can be obtained through the Registry of Deeds for the county where the property is located for just a few dollars.  Most counties even allow you to print it from their online search software at no cost.

Original Deed

Also note that you do not need an original deed or certificate of title to transfer your real estate.  The recording of these documents at the Registry of Deeds when you took title serves as proof of your ownership.  So, if you cannot locate the original, please do not panic.

Mortgage Discharge

Finally, please take a minute to think about any mortgage or other loan that has been taken out against your property.  If you have paid off the debt, it is essential that a “discharge” of that debt be recorded with the appropriate Registry of Deeds.  If you have any concern that a discharge may not have been recorded, we can search for it on the Registry’s website.  If it is not recorded, then it has to be obtained from the lender and recorded as soon as possible.  The longer you wait to obtain a discharge from a lender, the more difficult it can become to get one because of the frequent sales of mortgages and changes in the banking industry.  Tracking down a discharge after your bank has been sold several times, for example, can take some time and effort.

Homestead Declaration

In Massachusetts, up to $125,000 of the equity in your home is automatically protected from creditors. However, with a simple document filed at your Registry of Deeds for $35 ($36 in Norfolk County), you can actually protect up to $500,000 of your equity from future creditors for yourself and your family. Have you filed your Homestead Declaration?

Beneficiary Designation Forms

When was the last time you updated, or even reviewed, your beneficiary designations for your retirement plans or life insurance? Periodic reviews are a good idea for several reasons.
Companies are human too, so sometimes these forms get lost or misfiled. Asking the company to provide you with a copy of your form is a good way to ensure they have the correct one in your file.
Also, if your named beneficiary has predeceased you, unless you have a living contingent beneficiary, the retirement plan or insurance proceeds will most likely be payable to your estate. This will necessitate opening probate with the court, even if you have taken other steps to avoid probate in the administration of your estate.
When updating a beneficiary form, consider the consequences of a beneficiary predeceasing you and provide for this scenario on the form. For example, if you name your two children as beneficiaries, and one predeceases you, what happens to the deceased child’s share? Does it go to his or her children, your surviving child or your probate estate? The answer to this question should be clear on the face of the form.
One trick to ensuring that the proceeds are paid to the surviving child in the example above, is to leave the percentages blank. Most forms indicate that the proceeds are to be divided equally among the beneficiaries that are still living if there are no percentages assigned to the beneficiaries. Do this even if the form implies that percentages are required – in most cases, they are not.
Also, many forms now have a “check the box” option to leave proceeds to the descendants of a deceased beneficiary if that is your intention. Sometimes this option will provide for a “per stirpes” distribution or “by right of representation”. Both of these phrases require the distribution of a deceased beneficiary’s share equally to his or her children.
Beneficiary designation forms may appear to be simple and straightforward, but in reality, they have several traps for the unwary.

Health Care Documents

Who will make health care decisions for you if you are unable to do so for yourself? Will family members disagree about your care, especially in the event of terminal illness and life support systems? In a Health Care Proxy you determine who will make decisions on your behalf if the unexpected happens and set out the guidelines for doing so. Your Health Care Proxy can name someone, and several alternates, that you trust to make the decisions that you would make if you were able. If you already have a Health Care Proxy, you should review it regularly to be sure your appointed Agent is still able to perform under the document and that your Agent’s contact information is still accurate. As indicated, it is a good idea to name at least one alternate Agent to act in case your primary Agent is unavailable to act for any reason.

A Living Will Declaration is a statement of your wishes with respect to life support systems in the event you are terminally ill. Although a Living Will is not binding under Massachusetts law, it serves as a statement to your Health Care Agent, as well as your physician, family and friends, of what you want to happen should you be unable to survive without life support systems and not otherwise expected to recover. If you have a Living Will Declaration, you should review it occasionally to be sure it still accurately reflects your wishes.

Also consider adding a HIPAA Authorization to your health care documents, which is a release of your medical records to your Health Care Agent should he or she be called upon to make a decision on your behalf. It may seem obvious that a Health Care Agent will need access to medical records, but with the stringent Federal privacy laws, it is recommended that you have a specific release of records for your Health Care Agent. HIPAA refers to the Federal Health Insurance Portability and Accountability Ace of 1996.

Power of Attorney

A Power of Attorney is a document that operates during your lifetime. This document grants another person the power to stand in your shoes and take any action you can take with respect to your property and other financial rights. The purpose of this document is to ensure someone can handle all of your financial and legal affairs for you without the need to seek the appointment of a guardian or conservator through the Probate Court (a costly and public process).

Some actions your “attorney-in-fact” or agent might take include: writing checks to pay your bills, opening or closing bank accounts, withdrawing funds from your retirement account, discussing your benefits with the Social Security Administration, and so on. A well-drafted Power of Attorney should enable the agent to do absolutely anything you could do if you were able, even make gifts to your family members or favorite charities.

Note that a Power of Attorney is usually valid as soon as you sign it. It is NOT only effective if and when you become ill, as is commonly misunderstood. If a Power of Attorney was only valid if you were incapacitated, then it would still be necessary to prove you were incapacitated and defeat the very benefits of the document – efficiency and privacy.

A “springing” Power of Attorney, on the other hand, is only valid when you are shown to be incompetent. There is no guarantee that a springing Power of Attorney will be accepted by financial institutions and other entities without a court adjudication of your incompetency, thus defeating the purpose of the document. So, although some clients still feel more comfortable with the springing Power of Attorney, it is not generally recommended.

Use Your Estate Tax Exclusions!

Each Massachusetts resident can pass up to $1 million at death without a Massachusetts estate tax. This is referred to as the estate tax exclusion. So, it seems to reason that a married couple can pass a total of $2 million to their children free of estate tax. However, without an estate plan, this would probably not be the case.

Consider a couple with $2 million in assets, all of which they hold jointly with rights of survivorship. When the first spouse dies, all of the assets automatically pass to the surviving spouse as the surviving joint owner. There is no Massachusetts estate tax because there is a full marital deduction for all assets passing to a surviving spouse at death – regardless of amount. The surviving spouse now has all $2 million in assets, but can only pass $1 million to the children free of estate tax. The first spouse’s $1 million exclusion was not used and is no longer available to the family. The estate tax due in this example would be about $99,600.

All it takes is some relatively simple estate planning to make use of both estate tax exclusions and pass the full $2 million to the children free of Massachusetts estate taxes!