Today, Paul invites attorney Parker Brown onto the show to talk about wills, trusts, estate plans, and the probate process. Many people don’t realize that if you don’t have a will, your state has an estate plan for you. Unfortunately, it’s usually not what you would really like to have happen to you and your loved ones. Listen along as Paul and Parker dispel some information around estate planning to keep your family from having to navigate financial and legal problems after you’re gone.
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Paul Winkler: Welcome to “The Investor Coaching Show.” I am Paul Winkler. We talk about money and investing around here and everything that has anything to do with that.
We often talk about how you go through two stages in life, right? You work for money, then money works for you.
Here with Parker Brown of Fidelis Law. Now, Parker does a lot of estate planning work, so I thought it’d be really fun to have him on here and talk about something we don’t get to talk about an awful lot. It’s the idea of how do you pass this stuff along?
And we have appointments on this all the time where I’m talking about people, and we had one earlier. It was about that very topic.
Now, Parker, we have talked a little bit. How long have you been doing this?
Parker Brown: Ten years.
PW: Ten years. Okay. So you’ve probably dealt with a couple of estates in that time.
I remember one guy telling me one time, and he said he was an attorney, and he said he was in some county and he was talking about how few estates were actually probated in that county. And it was literally the idea that so many people die intestate, where they don’t have a will at all.
And do you still find that to be the case? A lot of people actually don’t do any kind of planning, and of course, the state has a plan for them?
PB: Right. We do. We see that a lot. I’d say anytime at our firm, we’re probably managing about between 40 and 70 probates. And I’d say I have seen an uptick in estates with wills versus the intestate estates. So I do feel like —
PW: It’s getting better.
PB: It’s getting better. Absolutely.
PW: Good, good. Yeah. Because people don’t realize that what happens when you don’t have a will can not be necessarily what you really want to have happen. You want to make sure you plan this thing.
PW: Okay. So one of the things that becomes a topic on an ongoing basis, and I hear this all the time: “You got to have a trust when it comes down to estate planning.” And I remember my parents, just a real quick story, lived in a state where you really did. You had to have a living trust, and you had to have that set up because the probate process was nightmarish.
Now, so what I want to do is I want you to just kind of talk a little bit through times when you might recommend something like that and then times that you might not. Maybe it’s a good place to start.
So probate process, what is that? By definition, what is probate? I want to hear your definition.
PB: Absolutely. Well, one common misconception we do hear a lot of clients say is, “Hey, my mom or dad had a will, so we don’t have to do probate.” And we immediately tell them it’s actually the opposite.
PW: Yeah, the proving of it. Yeah.
PB: Exactly. And so what probate is is you have a will, you bring it to court, and a court essentially oversees that whole process to make sure what you had in your will gets taken care of.
You appoint somebody called an executor or a personal representative. They’re directed to carry out your wishes in the way you had them. And there are all these different check marks and things you’ve got to do along the way, timelines you’ve got to meet.
So probate is kind of like that boogeyman, where usually people have only heard stories about it if they’re bad stories. It’s one of those where you usually hear, “Hey, my uncle’s probate lasted 10 years and cost $50,000.” That’s not the norm that we see.
We can talk some about what complicates probates or doesn’t. The key background for us when we’re talking to clients during their estate planning in the lens of probate is to really help people understand what goes through probate, because that’s where a lot of the confusion can come in as far as an estate goes.
PB: So it’s probably oversimplifying a little bit, but what does not go through probate, I usually simplify into three things. There’s stuff held in trusts. So trusts do not generally go through probate.
PW: So if you have a living trust, it’s kind of like taking your stuff and having it owned by the trust, and then you have beneficiaries on that, is kind of the way I like to explain it to people. It kind of helps them understand it because they’re familiar with the idea of beneficiaries a lot of times.
PB: Exactly. And in that case, you have a trustee who’s somebody you appoint that they go through usually without the court oversight, which is the advantage to not having it in probate, and they carry through your wishes.
So it’s a little less stringent. There are no court requirements, things of that nature.
PW: You got a bank account, you got a CD, or you got a savings account or something like that, and they have a payable on death POD, TOD, transfer on death, that type of thing.
PB: Exactly.
PW: And you’re naming a beneficiary on that.
PB: Correct. And on that note, that’s where we do get a lot of the confusion in probate because one thing people have to understand that’s very difficult to understand is let’s say my will says, “I leave Paul Winkler my IRA located at Paul Winkler’s firm,” and the IRA with your firm says that it goes to John Doe, it’s going to John Doe no matter what the will says.
And so in our probates, that’s a very common thing we have to explain to people. They’ll say, “Well, my dad’s will clearly said that he wanted this to go to me.” Well, the payable on death designation supersedes that.
PW: Parker, I used to cold-call businesses, and I’ll never forget walking into a business one day and talking to this young guy, and he told me a horror story about one of his friends. And the friend, he was married.
He passed away, and the life insurance policy that he had, the beneficiary was his ex-girlfriend, and then his current wife had nothing. Couldn’t do anything. So yeah, that’s a really good example.
PB: Yes. Exactly. And that’s a very common one we see.
PB: Which leads to the third thing that does not go through probate.
So, for example, a husband and wife are on a deed. They own their house as husband and wife, or tenants by the entirety, or tenants for the right of survivorship. Something happens to one of them, it goes to the survivor by law.
Joint bank account with me and you. You pass away. I own that.
Which can also lead to issues in probate because a very common thing for people to do is, as they get older, maybe, “Hey, one of my kids is local to me. I want to put them on my bank account, that way they can help me pay bills.”
Well, they don’t necessarily always realize that when they pass away, that child owns that money. And I’d say in nine out of 10 times, we run into that, that child will tell us, “Hey, I realize that that’s mine, but I’m still going to split it with my siblings like the will would’ve said.” But legally, if they didn’t want to do that or they don’t like their siblings, they own that money at that point.
PW: Now, if a parent does need help, just hit that real quick: What would you have them do as opposed to putting the child on the bank account, if they just need help?
PB: I would have them do a power of attorney if they can.
PW: There you go.
PB: Yeah. Execute.
PW: You talk about leading questions.
PB: Right.
PW: Yeah. And then you’ll have IRA beneficiary designations, 401(k) beneficiary designations, so that bypasses that as well.
PB: Right.
PW: Yes.
PW: Okay. So when we’re dealing with the probate process, explain what that is.
And one of the things that you hear is that probate is really expensive. I want you to hit that aspect of it as well. So go wherever you want with that question.
PB: Absolutely. So as far as the process goes, I tell people there’s two lanes you go down. Most people use the word probate to encompass both, but probate is when there’s a will. So someone has a will, and you’re following what the will says.
There’s something that’s got to be administered in my estate. And then Tennessee dictates who in your family that goes to.
So for example, if I pass away and I’m married with no kids, Tennessee says it all goes to my spouse. The issue that we run into most with intestate estates is if I pass away and there’s assets in my individual name and I don’t have a will, and I have a wife and children, it splits up amongst the wife and the children.
So for example, if there’s a husband who dies, he has a bank account solely in his name, no beneficiary on it, he has a wife and two kids, that account would actually go one-third to the wife, one-third to each of the two kids.
Which is bad enough on its own, but what we see a lot is those kids aren’t always above 18 either, which leads to a whole different aspect of having to get a guardianship. A court’s got to watch over it. So that’s the intestate route.
Probate is where you have a will and you go through that process. And how it generally starts is we do have a lot of people that always surprise me. They’ll call us the day or the day after somebody passes away and say, “Hey, what do I need to be doing?”
And we’ll tell them like, “Hey, take some time to grieve. There’s nothing you have to do today.”
Because we tell people the two things you need to even open the process is a death certificate, which obviously takes a little bit of time, and then the will. And so in just talking through probate, you have a will. The other complicated thing, I guess, about the probate practice is there are the statutory rules, and then there are also these counties that all have different rules.
PW: Right.
PB: We have now Williamson County is e-file only, so everything’s pretty much electronically filed. You go out to some of the more rural counties, they require you to be there in person, file everything. So there’s kind of those nuances that you’ll kind of need someone to walk you through on that front too.
PW: Is it less expensive when you have counties that are more sophisticated as far as the way they do these things? For example, if we were to say we have a hundred thousand dollar asset that gets moved from one generation to the next, what is the probate cost for something? Is there something that’s set or is it varying, or how much does it vary or what percentage might be eaten up in costs for probate?
PB: Right. It varies. Some attorneys charge different ways.
Our firm does it hourly, so we usually try to require a small amount up front, and then we usually bill against that. And probate’s one of those things that’s not very cookie-cutter, kind of like some other areas. They all kind of have their own wrinkles and turns.
I always kind of tell people, simple probate — which would be what I would call everybody gets along, the assets aren’t overly complicated — usually I say ballpark $5,000 range. And then we obviously have a lot more than that when there are wrinkles and issues with them. But especially estates where it may be a single beneficiary or things like that, you can, at least if we were handling it, you can get out of there for usually $5,000 or maybe even a little less.
PW: I’ve seen where you go to a workshop telling you, “You’ve got to have a living trust,” and the reason is that your probate might be 5% of your estate or 10% or whatever. You’ll see that type of scary type of stuff. So you’re basically saying not necessarily. There might be just an hourly fee that you pay an attorney to help you out with these types of things.
PB: Right.
In our experience now, unless that’s specifically set forth in their will that they wanted that, it’s not usually the case at all. It’s usually an hourly rate. Now, people’s hourly rates vary. The process can vary.
But to answer your prior question, yes. I mean, when you’re doing it hourly, not having to go to court somewhere definitely saves the client time and money. So in a Williamson County probate where you’re never having to necessarily go there, it can definitely help with the cost of that as well for sure.
PW: Yeah. So let’s say that you’re talking to somebody and they’re saying, “Well, I’ve really heard I need to have a living trust.” In what instances are you like, “Yeah, that makes a whole lot of sense,” in Tennessee, or in this particular area where most people are going to hear this?
PB: Yeah. And that’s what I walk people through mostly is trusts. I mean, we’re not a firm.
I do think a lot of firms you walk in, they immediately say, “You are absolutely insane if you don’t have a revocable trust, because probate’s the worst. You don’t want to be involved with that.”
And that’s just not necessarily our experience with probate. Like I said, nine out of our 10 probates are pretty smooth.
People that maybe have had that terrible probate experience in the past. I mean, usually when people come into us and they say, “Hey, we want to make this process as easy on our children as possible,” those are the people that usually end up doing a trust because when you walk them through, “Hey, probate would be X, probate takes X amount of time, they usually end up doing that.” And I mean the trust you can do for high net worth individuals, some different kind of tax planning and some of that stuff that you can still do in a will, but it’s sometimes a little easier to do that through a trust.
PW: Well, a lot of people believe that with a living trust, somehow you avoid estate taxes with that. And most people, you just avoid estate taxes by living in America right now because the unified credit or the credit against estate taxes is so high, a lot of people aren’t going to be dealing with that at all. But I don’t know where they get that idea.
PB: Right. And that’s something we’re running into now, is we’re going back to some clients and saying, “Hey, you don’t need to be planning quite as much for this estate tax anymore,” now that that’s been signed on.
PW: Yeah. Well, Parker, you know what the unified credit was when I actually got my financial planning degree? It was $600,000. So you weren’t able to pass a lot of assets without having to deal with estate taxes back then. I just dated myself, I guess.
PB: No. We have clients all the time for probates, they’ll bring in mom or dad’s trust or grandpa’s trust and it’s about this fat, and they’re like, “Why did they have to do this?” At the time, it made sense.
PW: They got an AB trust, they got a bypass trust. Yeah, for sure. Yeah.
It’s so much nicer not having all of those complexities now versus what it used to be like. It was nightmarish.
PW: Okay. So I guess the thing to think about here is that you got the probate process. It exists. It’s not necessarily as complicated. Another example that comes to mind for me, as far as when you might look at this — and this is my thing, you answer your way — if we’re dealing with people that have property in multiple states, why would you want to have possibly a trust in that situation?
PB: Very good point. So with probate, the other wrinkle that you run into a lot is you have to probate each state essentially where there’s property interest. And so the two most common areas you run into are real property, or my least favorite, mineral rights or oil rights.
PW: We see that from time to time.
PB: A lot of these people have that in and out of state, and they are a pain to deal with. But yes, so if you don’t have a trust, you would open your, what I would call your base probate, where you’re a resident, but then in each state … if you have a Florida beach house, you would have to open what’s called an ancillary probate in Florida to get that transferred.
But you’re exactly right, that would lead to multiple. No one ever wants to be paying more attorneys than they have to be paying.
PW: Oh, for sure. Okay.
We’re talking about estate planning and the things that you probably need to know, things where it’s not always pleasant to talk about these things, but the reality of it is there are two things that are for sure, right? Death and taxes. So we’re going to continue right after this.
We’re talking about the probate process, some estate planning types of things, because I think it’s an important thing. There’s a lot of confusion in this particular area.
Sometimes I’ll hear people say, “You always need a living trust.” And I’m going, oh man. You can tell when somebody’s been to some kind of a workshop.
PB: Yeah.
PW: Right.
PW: So we talked a little bit about a couple of the instances that it might make sense. Is there anything else that you want to throw in there, Parker?
PB: Another common area we see is people with privacy concerns.
Whereas a probate is an open record. I mean, certain things can get sealed. But generally, I could go look up probate, a will or assets of people during a probate. So some people that are extra cautious with that stuff prefer to do trusts as well.
PW: Got it. Now, you still do have a will with a trust.
PB: Correct.
PW: So just explain that, what it is.
PB: That is people come in a lot, and you still get a will, it’s what’s called, we call it a pour-over will. So it’s essentially a catch-all that you hope is never used because that means some asset out there either wasn’t …
PW: Which always happens.
PB: Right. And so all it is, it’s essentially like a two or three-page will that says, “Hey, if we miss something, we want it to go to our trust.” So you do still get a will.
PW: Yeah. Just to explain that for those you wondering what I’m talking about. You have to have the trust own everything.
So you have to buy a car, you’ve got to put it in the trust name. So the car is actually owned by the Joe Jones Trust and blah, blah, blah.
And people forget, they forget that they got this thing and they forget to do it, and you’ve got to make sure that you have something that catches that asset if it’s missed. So that’s basically what we’re talking about.
PB: Correct.
PW: Okay. So what complicates things?
PB: So once you get into the probate, another common misconception we run into is, well, “I have a very high net worth estate, so it’s going to be a long expensive probate.”
Some of our highest net worth probates have been the easiest ones we’ve had. To me, what can complicate it is a couple of things. One, there are some assets that are just harder to transfer than others.
For example, we threw out earlier that the mineral rights are difficult. A lot of people in the Nashville area, if they have royalties, music royalties or things like that, those are complicated because a lot of those people end up having royalties with 15 different agencies, and you have to do paperwork and all that stuff for all of them. So that can hurt things. But for the most part, the number one complicator, which you can’t necessarily control, is the people.
PW: I was just going to say, “Warring children.”
PB: Right. So the most expensive probates are where the siblings or whoever are fighting over every single thing. And you can help combat some of that with your will.
For example, having stuff in there about what happens if there are disputes amongst beneficiaries. Do we just sell it and split? Things like that can help. So beneficiaries not getting along is, I would say, the number one driver of it, because then there are people filing claims, there are all sorts of crazy things.
PW: Well, let me hit that for just a quick second because one of the things that I see from time to time is where you have three kids, let’s say, and they’ve inherited a piece of property. One wants to sell it and the other two don’t, or two of them want to sell it and the other one doesn’t. And you have somebody holding that up. Is that part of what you’re talking about?
PB: Exactly. That’s exactly what we’re talking about.
Tennessee’s tricky with real property because when there’s no will, it’s just owned by whoever would’ve inherited it immediately when they pass away. And then in Tennessee, equal owners of a property, any one of them can force a sale.
If there are 10 owners and nine want to keep it, one wants to sell it, that one can force a sale. It’s called a partition action, and they file that and can force a sale. So circling back to, I guess, the trust conversation or your will, either way —
PW: So before you go too far into that, so they can force a sale, can the other children just, let’s say it’s all children — that’s a lot of kids, if that’s the case — can then the other kids get around that by just saying, “No, we’ll give you the amount of your value of that so that we don’t have to sell it”?
PB: So Tennessee, we don’t do a ton of it, but they have a new type of partition that is for what’s called heirs’ property, which is that situation where heirs inherited it. And that new process they have does have a mechanism for buyouts built in. It’s a long, complicated statute, but there is a buyout mechanism in there.
PW: Sounds like it’s needed, though.
PB: Right. It is, yeah.
PW: Yeah. So that’s a possibility right there that they can actually have that happen.
PW: So, anything else that you say, “Okay, this complicates it,” or are those the main things right there?
PB: Those two, but probably maybe even the biggest one is just poor estate planning. So you had estate planning, but there’s an ambiguity in the will. Usually, it comes down to an ambiguity.
A lot of times, we run into that with people that do their wills and stuff online, the automatically generated things. Not to say there’s not a good way to do that. We’ve seen some that work.
But a lot of those end up saying, “Oh, by the way, I leave my house to blank.” And then everybody thinks they’re blank.
So then you’re spending weeks and months of, “No, they told me that this was supposed to go to me.” Or you have a case where they say, “Hey, we’re going to give X dollars to these people.” Okay, well, were they talking about individually?
PW: So do you ever have somebody where you’re trying to prove which was the very last will that was actually done?
PB: We do have that. So yeah, a lot of people update their will a lot and there’ll be confusion about which one was the latest. The other difficulty you run into on some of these probates is when people execute them as they get older, whoever got the short end of the stick in the will is usually saying, “They didn’t have the capacity to do that anymore when they signed that.”
PW: Exactly. I was going there next.
Go ahead. Keep going. Because how do you prove that they did have the capacity or they didn’t?
PB: Exactly. We tell clients all the time when they come in and say, “I know my dad did not have the capacity to do this,” we tell them that’s, in my opinion, the hardest probate case to prove.
Because do you know if they had a moment of clarity that day or what Tennessee calls a lucid interval? They could have had the mental capacity to sign that. So unless there’s just evidence upon evidence of somebody being incapacitated, it’s very difficult to prove any sort of claim like that.
PW: For sure.
Advisory services offered through Paul Winkler, Inc an SEC registered investment advisor. The opinions voiced and information provided in this material are for general informational purposes only and not intended to provide specific advice or recommendations for any individual. To determine what investments are appropriate for you, please consult with a financial advisor. PWI does not provide tax or legal advice. Please consult your tax or legal advisor regarding your particular situation.
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