3 Easy Ways to Keep Your Heirs Out of Court
Courtesy Klancke & Cook, Attorneys at Law, Denver LIVING WELL Magazine
Is your attorney proactive on your behalf or, for lack of a better term, is he simply active? It’s an important question. The vast majority of attorneys practicing today are hardworking individuals with a special skill set that allows them to be excellent problem solvers. The issue is what approach they take to solve the problem that creates different levels of service and solutions for you.
When an individual, or a couple, goes to see an attorney for estate planning, many factors play into the types of documents that should be drawn up. It all starts with a personal conversation and the most important job the attorney has is to listen very carefully, ask the right questions and carry out the client’s wishes. However, how the wishes are carried out can vary. For example, you say, “I want my children to have my house when I pass away.” Simple, right? In theory, yes. Yet, how the attorney accomplishes the transfer to your children is very significant and has huge implications down the road.
Many attorneys will draft a paragraph in your Will, stating your children are to receive equal interests to your home. Very straight forward. But, if your attorney stops there, your estate will now have to go through probate, a court proceeding, usually requiring the use of an attorney, for the children to receive their ownership interests in the property. A proactive attorney will not stop with such language in a Will because he or she knows the probate implications.
In Colorado, property may be conveyed to third parties (your children) today, but so long as the Deed is not recorded, no conveyance has taken place. The best way to make this work is that a Special Warranty Deed from parent(s) to children is signed along with all the other estate planning documents, but gets safely tucked away with all the other originals. Only after the death of the home owning parent(s) does the Deed get recorded. With the simple act of recording the Deed, even if signed 20 years earlier, the home passes to the children and completely avoids probate. Congratulations, you’ve just eliminated the need to open a probate estate for the home transfer and pay an attorney the cost of probating such estate. All with a simple unrecorded Special Warranty Deed sitting in your drawer.
Some attorneys will advise their clients to sign and record a Beneficiary Deed. This works too, but has problems, starting with the fact that it has to be recorded while the Grantor (e.g., parent) is alive. Once recorded, what if you change your mind about who gets your house? When recorded with the county Clerk and Recorder, a Beneficiary Deed requires additional work––and lawyering––to undo. With an unrecorded Special Warranty Deed you can change your mind. There is nothing of public record to interfere with those actions. Just go to where you keep your original estate planning documents, find the Special Warranty Deed, and tear it up. Bam! The conveyance is undone without any further action required.
One caveat: Not every state has the same conveyance and recording laws, so for any property you own outside of Colorado, you must check with a local attorney practicing in the state in question to see what you can do. We’re just lucky Colorado makes it so easy.
A second and easy way to make sure you don’t need the services of an attorney after completing your estate plan, or having your estate end up in probate court, is to use Payable on Death (POD) and Transfer on Death (TOD) options on all your financial accounts. Usually, anything to be transferred via your Will requires probate and attorney services. Instead, list every financial account you have ––stocks, IRAs, bank accounts, life insurance, all investments––then request from each company POD or TOD forms. Name the beneficiary(s) on each account, or if you have a Living Trust, name the trust, and return the form to the company. Upon your death the funds will be transferred directly to the named beneficiary. No probate-no attorney!
Now, here’s the third, and most conditional, way to avoid probate court. Create a Living Trust. Having said that, understand that today the majority of people don’t need a Living Trust. It used to be that every other estate plan included a Living Trust to avoid paying estate taxes because the estate tax ceiling was very low. With recent changes in the tax laws, and the use of the two suggestions above, unless you have over $5.25 million in assets, a Living Trust isn’t required. Over $5.25 million is assets, talk to an attorney.
Today we use Living Trusts for a few different situations: 1. You have minor children and you don’t want them to inherit at age 18 (or 21, 25, etc.). 2. You have reasons for unequal distributions or splits and so can’t easily use PODs and TODs. 3. You have an adult child with problems or conditions and you do not want them to inherit without supervision or constraints. 4. You own real estate outside of Colorado. 5. Someone needs long-term care and financial management.
In these situations, a Living Trust is perfect.
An additional benefit of a Living Trust is that it is a private document, not subject to probate and not required to be filed with the court, like a Will. Money is passed (or held) according to the written terms of the Trust and the Trustee of the Trust can only spend money on what’s allowed per the document and can only distribute funds according to the document. It is a way for a parent or parents to control the distribution of their money after their death, privately and discreetly––no probate required. Just make sure the Deed we discussed above, and the PODs and TODs, all name the Trust as the grantee or beneficiary, as the case may be.
And there you have it! Three easy estate planning tools to make sure a court doesn’t get involved with your assets when you pass. You’ve planned well, executed a Will as a safety net, had a proactive expert help you and now it’s over. You’ve successfully said goodbye to probate.
Jill Klancke and David Cook have been practicing law together for over 26 years in the areas of estate planning, probate, business and real estate. They can be reached at 303-584-0500. Visit their web site at klanckecook.com.