Bar News - January 15, 2014
Opinion: Are Wills Necessary? Not If You Can Avoid Probate
By: Haden Gerrish
To question the necessity of a will is tantamount to heresy among members of the estate planning bar, because the knee-jerk response is that everyone needs a will to avoid intestacy. Yet most T&E lawyers will acknowledge that there are many situations in which a will proves superfluous.
The reality is that, with good planning, a will may have little or no impact on settlement of a client’s estate. The need for a will is intertwined with the need for probate. Indeed, a will “speaks” only after it has been admitted to probate, which presupposes that probate is necessary to settle a particular estate. There are many instances, however, in which it is advantageous to avoid the delay and expense of probate altogether.
As a threshold matter, it is worth reviewing which assets are, and are not, subject to probate. Property held outright by a decedent generally requires probate. Yet, as we know from our first-year property class in law school, there are many titles at common law, in addition to a fee-simple estate. For example, a life estate expires upon the death of the life tenant, which by definition is a property interest that is neither subject to probate nor capable of devise under a will.
A joint tenancy, of course, is another form of property ownership at common law. Jointly-owned property, sometimes referred to as joint and survivor, is property held by two or more owners in which the surviving joint tenant becomes the sole owner of the asset, as a matter of law, upon the demise of the predeceased joint tenant. Because joint property passes automatically to the surviving joint tenant, it is not subject to probate. A joint tenancy is to be distinguished from a tenancy in common, whereby each titleholder has an undivided 50 percent interest in the property, which is generally subject to probate. For elderly clients who may have divested themselves of most assets, with the exception of bank or investment accounts, joint ownership of those accounts will avoid probate.
Gifts provide another alternative to probate. If a client no longer owns an asset, it is axiomatic that the asset is outside of the client’s estate. For example, if an elderly parent transfers his/her house to the children, the house is no longer subject to probate. Such a transfer, however, may have other consequences to the parent for purposes of the Medicaid look-back period, or may require the filing of a gift tax return, considerations of which are beyond the scope of this article.
Other assets pass by contract, rather than by will, which again obviates the need for probate. Individual retirement accounts, 401k plans, and life insurance are all paid out according to the terms of the owner’s beneficiary designation, rather than by will, unless the owner designates his estate as a beneficiary.
A revocable trust also avoids probate. If a client transfers all of his or her assets to a trust, there is nothing in the client’s name to be probated. It is usually wise to have a pour-over will, just in case any assets remain in a client’s name, but theoretically, if everything has been transferred to a client’s revocable trust, a will is unnecessary.
Like many things in life that we keep on a shelf but may never use, a will has no particular disadvantage and sometimes is extremely useful. But, a will may prove unnecessary with good planning, which presumably would also be a welcome development for purposes of reducing the probate court docket.
|Haden P. Gerrish
Haden P. Gerrish is principal of the Gerrish Law Office, located at Strawbery Banke in Portsmouth. His practice focuses on trusts and estates, tax and elder law.