Bar News - March 18, 2015
Elder, Estate Planning & Probate Law: How to Help Your Clients Avoid Probate
By: Sarah Paris
Consulting with a married couple on an estate plan when one spouse is succumbing to a terminal illness is a difficult experience for everyone involved.
It is a scary, sad and overwhelming time for the couple, but it is also a time when the couple is more likely to see how the documents being drafted will directly affect their lives in the short-term. And the discussion about the benefits of avoiding probate really hits home. Depending on the clients’ assets, there are a number of options a lawyer can employ to ensure that the bereaved spouse will only need to file a will and death certificate with the probate court.
Using different types of bank or stock accounts is one important way of helping clients avoid probate.
ITFs, or “In Trust For” accounts, are controlled by the client during her life with no rights to the beneficiary. Upon the principal’s passing, whoever the account is “In Trust For” automatically becomes the account owner.
Other types of accounts that pass in the same way as an ITF are TOD, “Transfer on Death,” FBO, “For the Benefit Of,” or a “Totten Trust.” The only real difference between these types of accounts is the wording; they all accomplish the same goal.
One pitfall associated with these accounts is that the beneficiary could pass away before or at the same time as the principal, which would result in the account becoming an asset of the principal’s estate. If this happens, probate would need to be opened to access the asset.
Couples often use joint accounts with rights of survivorship as a vehicle for making sure that when one partner dies, the surviving spouse has immediate access to cash. Joint account holders have equal access during each other’s lives. This can pose problems when the account owners are a parent and child, especially if the child is financially irresponsible. Even in the case of spouses with joint accounts, there are limitations, such as estate planning for the surviving spouse or simultaneous death.
The most common and generally the most successful way to avoid probate and accomplish a client’s estate planning wishes is by establishing a revocable trust, also referred to as a living trust. A revocable trust has benefits during the life of the client and, if funded properly, will accomplish probate avoidance.
Depending on the situation, a joint or individual trust may be the best choice. Individual trusts for spouses with children from a previous marriage are great for assuring that the clients’ wishes with regard to gifts or bequests to their children are fulfilled. It is important to explain to spouses in this situation that although things between them are great now, should they choose to execute a joint revocable trust, the surviving spouse will have the ability to give the deceased spouse’s children nothing.
A less common probate avoidance tool is the irrevocable trust. Although there are some tax advantages, the client loses control of the asset(s) placed in an irrevocable trust – a major disadvantage.
Here are a few other ways to avoid probate that were suggested by members of the NH Bar Association’s Elder Law, Estate Planning and Probate Law Section:
In small estates where the cost of opening up probate is likely going to cost more than the assets of the estate, there are a couple of helpful statutes to be considered. In an estate where the only asset is a motor vehicle, Title 21 regarding Motor Vehicles includes RSA 261:17, which allows for a surviving spouse to assume ownership of a vehicle titled in the deceased spouse’s name, as long as the car had been used for household purposes.
Then there’s RSA 461-C:26, which enables an heir to allow the decedent’s assets to escheat to the state. After the assets escheat to the state, as long as the assets are under $5,000, the heir may put in a claim to obtain the “abandoned property.” The assets will be disbursed in the same manner that they are disbursed pursuant to the intestacy statute, RSA 561:1.
Another technique is to gift using annual and lifetime gift exclusions, but this can be chancy. Just like an irrevocable trust, access to the assets you gift is lost, and a client can run into problems should they need Medicaid within five years of making the gift or executing the irrevocable trust.
Clients must be warned that if they run into unforeseen health problems requiring nursing home care within five years of the asset transfer, they be required by Medicaid to get the assets back. If they cannot get the assets back, then they will likely be subject to a penalty period during which Medicaid will not pay for health care or nursing home costs.
There are myriad methods estate planning attorneys can use to help clients avoid probate. It is important for clients to know the options available to them, as well as the pros and cons of each option. When crafting an estate plan for a client that presents a difficult or complex question, one of the best resources available is the advice of colleagues in the NHBA Elder Law, Estate Planning and Probate Law Section.
Sarah Paris is a staff attorney at the Law Office of Katherine J. Morneau in Nashua.