ESTATE PLANNING:
AN EXAMPLE
This article is intended to act as an
example why someone should be concerned with their current status of their
assets, it is intended to be read in conjunction with Estate Planning Parts One
through Four (located here), and it is not intended to be read as the “one size fits all”
plan. As parts one through four expressed, it is typically very important to
avoid the probate system as much as possible. The probate system can add time,
money, and emotional distress to your loved ones in the event that they have to
come into contact with the probate system. For example . . .
Sally has one home and one car and does
have a will leaving everything equally to her three children and naming her
first-born, Mark, as executor. Her husband, James, died three years ago. Before
James died, he changed the title to his car to have Sally listed as TOD
(transferable on death), and the home was in a Joint Survivorship Deed leaving
his entire interest to Sally. This is good for Sally because all she would have
to do is file an affidavit and the death certificate with the local recorder’s
office to transfer the home into her name alone. The death certificate would’ve
been taken to the car title office and the transfer would be complete upon
payment of a small fee. James was able to help Sally completely avoid the
probate system. The transfers were quick and there wasn’t any contact with the
court which would have saved Sally a lot of time, headache, and attorney fees.
However, let’s assume that after these two
assets are transferred into Sally’s name, she does nothing. Sally has three
children: Mark, Mary, and Michael. If Sally was to die, without updating the
assets a number of things could happen. First, even though Mark is listed as
executor, to be appointed as executor, he would have to take the will to the
local probate court and pay court costs (probably exceeding $100.00) to open
the estate. Next, the home and vehicle would have to be appraised which would
require an appraiser to get a current-market accurate figure at least on the
home. Next, the appraiser’s fee would have to be paid and then Mark would have
to file the inventory. From the time of appointment to filing of the inventory,
including estimate waiting periods for appointment of the executor and
conducting the appraisal, you are probably looking at a three month period of
time. All the while, real estate taxes and bills for the home and car would
have to be paid, including insurance. At this point in time, the heirs would
have the option of taking title to the home or selling the home. If they decide
to sell, it could lead to additional time to clean out the home, list the
property, and allow buyers to inspect and find financing. This period of time
could take up to six months whereby additional bills would have to be paid.
Finally, Mark would get to the final accounting, where he would have to list
the proceeds of the sale, reimburse himself for bills paid, show the remaining
balance and distribute the funds.
Nine months of bills, filings with the
court, opening of accounts, and payments of fees, is the cost that would have
to be paid in the above scenario. Instead, had Sally obtained a Transfer on
Death Designation Affidavit for the home and filled out a TOD for the car, the
entire process would be condensed. Mark could have completed the required
paperwork in a day. The additional fees wouldn’t have been accruing. And, if
the children decided to sell the property, they could have listed it the same
day instead of waiting on court approval and paying all of the fees and taxes
along the way.
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