Pay Me Now or Pay Me Later!
Did you know that in Florida whatever property or assets that do not have a beneficiary designation, a joint title or are not titled in the name of a trust, must go through the probate process at your demise?
It does not matter whether your estate is taxable for Federal Estate purposes or not.
Why do you care?
Simple, in Florida the cost of probating an estate can be expensive. It is also required that an attorney probate an estate. There is no do-it-yourself option, especially if you are the “dearly departed” one.
Absent a negotiated fee structure, attorneys have the statutory right to charge based on the size of the probate estate in Florida.
The statutory Florida rate schedule is below and starts at 3.75% for a $40,000 estate:
These fees are only for “ordinary” services. Anything the lawyer does that isn’t ordinary—for example, handling a will contest or giving tax advice—is presumed to justify a larger fee. If a lawyer follows the fee schedule, the fee may be almost unrelated to the amount of legal work done. It may be the same amount of work to handle a $1 million brokerage account as it is to probate a $100,000 account—but under the statutory fee schedule, the bill for the million-dollar account would be ten times larger.
Now you may be ready after reading this to immediately go “those dirty rotten attorneys” and quite frankly this article is not intended to denigrate our estate attorney friends. It is to merely point out that this process can be expensive and like much in life, a little advanced planning goes a long way.
Here are few things you can do in advance to lower that cost:
1) Establish Your Beneficiaries
The simple answer to this issue is to make sure every asset you own that can have a beneficiary designation has one. This includes every retirement account such as 401(k)s, 403(b)s, IRAs and even your life insurance policies.
Be sure to name both a primary and contingent beneficiary in case you and your primary beneficiary would to perish at the same time.
2) Joint Ownership for Some Property
The next not so simple answer is to consider how your taxable accounts and assets are titled. For example, if you own a home and many Americans do, consider holding it in joint tenancy with the right of survivorship with your partners. If you live in a state, such as Florida, that allows tenancy by entireties for married couples, consider holding the title to the home or vacation house as tenants by entirety.
3) Pay-On-Death or Transfer-On-Death Designations
If you own a bank or investment account, it is now possible to designate someone as a beneficiary on many of these accounts. This is called either Pay-On-Death (POD) or Transfer-On-Death (TOD). Unlike some joint ownership structures, the POD or TOD beneficiary has no rights to this property while you are still alive.
4) Fund that Trust
How about those ownership interests in businesses, partnerships or other investments where there are no POD or TOD options?
Ideally these assets are titled in the name of your revocable trust. You know revocable trusts are not just for the affluent. They can be a viable option for anyone!
Let me give you a recent example from one of our families.
We recently started working with a new family with a successful medical practice. When we started looking at her ownership interests in various entities, we noticed that they were all in her name personally.
When we sat down with her and explained that her $12.1 million in entity values would have to go through probate on her demise she seemed disinterested.
We then explained that these assets would be in the public record at her demise, she perked up a little. However, she figured she would be gone anyways and who cares what the public knows at that point.
However, when we explained that these assets would cost her estate an estimated $215,000 in legal fees based on the statutory schedules above as part of the estate process in Florida, that is when she fell off her chair.
The solution is a simple assignment agreement for each of her 20 entities and probably less than $5,000 in legal fees today.
Would you rather pay $5,000 today to save your heirs $210,000 tomorrow? I think just about anyone would.
However, the truth is the most neglected step in the estate process for the affluent is the retitling of assets, called funding the trust.
The moral of the story today is a little advanced work, can save your heirs a lot of headache and your estate money in legal fees.
It is a little like the old FRAM oil filter commercials, “You can pay me now or you can pay me later.” The same concept applies here, except the bill down the road could be much larger.
A word of caution, although it is easy to implement some of the ideas, above, to reduce legal fees in the probate process, there are many pros and cons to blindly relying on beneficiary designations, joint ownership, and POD designations. It is recommended you always seek the help of a qualified attorney in this process.
Let us know how we can help.