Strategies to Transfer Property

Question 1

What is probate?

Answer 1

• The legal process that validates the will and supervises distribution of the estate to the right heirs

Question 2

What happens in the probate process?

Answer 2

• Ensures that the assets from the estate are distributed appropratiely to heirs and that debts to creditors are paid off from the estate
• Change of title from the decedent’s name to the new bene’s name also takes place
• Validates the will

Question 3

Executor

Answer 3

• Appointed by decedent
• DOES NOT need surety bond
• Receives letter of testamentary from the court
  
  • This is the document that names the executor to supervise the distribituion of the estate
• Duty to validate the will and check with the people who signed the will

Question 4

Administrator

Answer 4

• Not appointed by decedent, but rather from the court
• Receives letter of administration (approval) from court
• REQUIRED to post surety bond BEFORE performing duties

Question 5

Duties of administrators/executors

Answer 5

• Prepares and asembles the property
• Posts announcments of decedent’s death in appropriate outlets
• Manages and maintains investments in the property
• Pays decednet’s expenses and debts
• Files and pays federal and state taxes
• Distributes the estate to the bene’s

Question 6

What are some things that have to pass through probate?

Answer 6

• Life insurance owned by decedent who IS NOT INSURED
• Life insurance payable to estate
• Testamentary trust
• Pout-over will
• Intestate property

Question 7

Probate Process - Advantages

Answer 7

• Credit protection available because probate process ensures that debts are PAID FIRST BEFORE distribution of estate to heirs
  
  • Bars future creditor claims against estate
• Ensures distribution of a decedent’s will are followed and fulfilled
• Provides an effective way to general a clear new title for bene’s
• Provides an opportunity for all involved parties to participate in discussions during the dispostiion proceedings
• Provides prudent management of decedent’s assets

Question 8

Probate Process - Disadvantages

Answer 8

• Can take very long and can be very expensive
• Process of identifying all involved parties, conflicts, issues conerning taxes, and others could delay process
• Public process, so no privacy for involved parties

Question 9

What is ancillary probate?

Answer 9

• This is a second probate that is needed when a decedent owned property (real estate or tangible property) in a state other than the state of the decedent’s domicle.
• These probate proceedings have to occur in the states where they owned the property, which can be time consuming and complex

Question 10

Community property vs JTWROS/Trust

Answer 10

• In community property states, a decendent’s half of the property in married households goes THROUGH PROBATE
• In JTWROS/Trusts:
  
  • It does NOT go through probate

Question 11

Name the four general ways by which property is transferred upon death

Answer 11

• Operation of law
  
  • Joint ownership
• Probate process
  
  • Will or a testament
  • Intestacy laws
• Trusts
• Contracts

Question 12

Operation of law

Answer 12

• Upon death of an owner of REAL or TANGIBLE assets, the owner’s interest and title passes DIRETCLY to other surviving owners
• Typical in JTWROS and tenancy by entirety where there are joint owners

Question 13

Probate Process

Answer 13

• Any property that the deceased owned and had complete control over passes through the probate process
• The property transfer can take place based on instructions from a will left by the deceased
• If there is NO WILL:
  
  • Property transfer will be based on state’s intestacy laws

Question 14

Trusts

Answer 14

• Can establish a trust and transfer properties (while alive) to give away to the trust
• Once trust is established, property placed in a trust is NOT subject to probate
• Also, properties placed in a trust are NOT affected by instructions from a will
• When grantor (the oriignal owner of the property) dies, retitling is NOT REQUIRED FOR TRUSTS
  
  • Because the retitling occurred when the grantor transferred the assets to the trust
• REVOCABLE (grantor owns right to change conditions of trust) trusts become IRREVOCABLE upon death of grantor

Question 15

What kind of trusts are subject to probate?

Answer 15

• Testamentary trusts that are CREATED BY A WILL are subject to probate
• Property transferred by a POUR OVER will is also subject to probate.

Question 16

Contracts

Answer 16

• These are assets that have DESIGNATED beneficiaries
• Such as life insurance contracts, qualified retirement plans, etc
• If there is NO desginated bene named, or if the designated bene if the estate, then it will be subject to probate.

Question 17

Contracts - What is a totten trust?

Answer 17

• These are also known as Payable on Death accounts
• Usually are bank accounts that have desginated bene’s who become owners of the account upon death of owner

Question 18

What are the financial planning strategies for avoiding probate?

Answer 18

• Retiling property or titling newly acquired property as JTWROS
• Titling property as tenancy by entirety
  
  • For married couples who want creditor protection in the event of creditor claims against a spouse
• Creation of revocable trusts
• POD/TOD accounts for designated bene’s
  
  • Lease expensive way to avoid probate

Question 19

Explain creating revocable trusts for avoiding probate

Answer 19

• Revocable trusts are created when the grantor (the property owner) tranfers the TITLE of the property to the trust
  
  • Even though ownership is transferred, the grantor still has the rights to change the terms of distribution from the trust as long as they are living
    
    • Upon death, trust becomes irrevocable and the trustee can distribute the assets based on the terms of the trust
• Trusts do NOT go through probate
• There are legal costs in establishing trusts:
  
  • However, grantors will save probate costs and privacy concerns
• Distributions made to trust bene’s CANNOT BE CHALLENGED IN COURT
  
  • Which makes these trusts beneficial for UNMARRIED partners
• A funded standby trust can also provide for the management of the grantor’s assets by a successor trustee if they were to become imcompetent