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: All right. Back here on “The Investor Coaching Show,” I’m Paul Winkler, talking money and investing, and estate planning today in this particular hour. Parker Brown here from Fidelis Law down in the Cool Springs area.
I’ll throw out their number, 615-370-3010. Yeah, there we go. It’s funny because I have the number in my head all the time.
Parker Brown: Yeah, right.
PW: I should have been able to get that right, 370-3010. Okay.
PW: Parker, we were talking about wills. A lot of people, they hear the idea of probate and they go, “Oh, it’s terrible. It’s awful.”
Yeah, if you live in California, for sure. If you live in New York, yeah, for sure. No question. There are some states that it’s absolutely almost incumbent upon you to do a living trust because of the complexity and how awful the estate planning process can be after somebody passes away.
And then a lot of people don’t realize that you have assets that pass via law. You’ve got beneficiary designations, TOD, POD designations and those types of things, or joint ownership and those types of things.
And when we’re dealing with probate, we say, “Well, you look at it, and it used to be that maybe you had percentages of the estate that would go out,” and that’s not so much the case anymore, as you said. What are some of the things that people can do to reduce costs that are outside, and maybe not do a trust, but things that they can do with a regular will to reduce some of their expenses?
PB: Right. There are absolutely things you can do. If you’re at home now looking at your will and you want to say, “Hey, I’m doing a will. I’m not doing a trust for any of the reasons we talked about,” always look at your will and make sure it waives three things is what I tell people.
Make sure it waives the bond. So, during a normal probate, the executor has to actually go obtain a bond for the asset value of the estate.
Inventory, so the inventory and executor also within 60 days of probate being open —
PW: Now, waives the bond, so that you lose protection if you waive it.
PB: You do, so you need to trust who you’re appointing.
PW: I want to make sure you said that. Okay.
PB: Exactly. Don’t waive it for anybody.
PB: So you have to file an inventory within 60 days, so that’s not always the most costly thing, depending on how detailed your inventory is.
PW: And inventory, explain that a little bit.
PB: In inventory, you would file what is part of the estate. And so again, that can be what’s part of the probate estate.
So what we talked about earlier, if there was a bank account that was co-owned with a child, it would not be on that inventory. If there was an IRA with a payable on death beneficiary, it’s not on that inventory.
PW: So you’re talking about what the value of the car is, the value of maybe —
PB: Personal property.
PW: — certain collectibles, might be the china cabinet.
PB: Everything, yeah.
PW: Or do you just lump everything under furniture in just one number?
PB: Every court’s different, most of them it’s just household items or personal property. And so, like I said, some estates, it’s easy. “Hey, my inventory is one bank account, one thing.” But other states, your attorney can spend a lot of time working on that inventory.
PW: Well, what’s Tennessee like?
PB: Tennessee just depends on the county, but they’re all, you list out, they’re mostly broken down into real estate. You would list real property, part of the estate, usually cash, stocks, they break down 15 or 16 things. Recreational vehicles, vehicles, personal items, all sorts of different stuff that can be included on there.
PW: You said it depends on county to some extent?
PB: As to the format they want.
PW: Is there anything that anybody can do to make things make life a little bit easier for their kids?
PB: What I always tell people as far as in the wills, waive that inventory just so you’re not necessarily filing them. And the third thing to waive is that Tennessee requires interim accountings for an estate, which would be 15 months from essentially when the estate is opened, you would have to file an accounting.
PB: That is where these things we’re talking about, waiving the inventory and accounting, the reason you’re saving your estate a lot of money and time is the attorney’s going to be the one probably doing that.
Our probates where we don’t have to do inventory and accounting are the cheaper, easier probates because your executor is not having to report as much back to the court.
PW: So this is something you do in the setting up of the will process; you can waive these things.
PB: Your will, and most wills do, but always check your will and see if it waives bond, inventory, and accounts.
PW: Okay.
PB: That’s a good way to help make the probate easier if you have it. Other things people can do in their estate planning that I’ve seen help a lot in probate, to answer your other question, is I tell people, tell your kids, write down: Where do you bank? Where do you have assets? Who’s your financial planner?
I tell people, don’t necessarily put passwords and things like that on there, but just tell kids where your stuff is. Because I mean a lot of people, they don’t know where mom or dad banks, they don’t know if mom and dad, they don’t know they opened a stock account here. The more you know, the less digging they have to do as part of the probate process for sure.
PW: We actually have, and a lot of our clients may not even know this, so I’m telling on myself that I haven’t communicated this that well, but we actually have a love letter, which is a little booklet that does that kind of stuff. If you’re a client of our firm, Paul Winkler, Inc., just let us know that you want that thing, and we can get that to you.
PB: That’s huge help, yeah.
PW: Yeah. Okay, so as far as that goes, those are some of the things that you can do to make things a little bit easier.
PW: Tell me what else I need to know about probate that I’m not necessarily thinking about, things that I might be dealing with. You were talking about the executor, executrix if it’s a female, the functions, the things that they have to do.
I was dealing with an estate earlier this particular week, they haven’t passed away yet, but we were talking about the choice of the executor being an out-of-state person versus somebody that’s in-state. Talk a little bit about how much work there is to being the executor or executrix, and should you try to find as best you can somebody that lives in the same area that you do and talk about, is that a big deal?
PB: There is. It’s a big role. We tell people, usually when they come in for that first meeting, “Hey, this is a fairly big role, big responsibility.”
How big does depend on if you waive some of those things, so they’re always thrilled to hear that bond inventory and accounting got waived. “I don’t have to go get a bond.”
As far as, I mean, we do deal with a lot of out-of-state fiduciaries, you do have to register them with the Secretary of State here, so that’s an extra step. For out-of-state, it also depends on the county.
Like we talked about earlier, we have plenty of out-of-states that they never have to come here because you don’t have to appear here. And so, depending on the county, I would ask your attorney drafting your estate planning, “Hey, as of now, would my executor have to appear?”
If you do have the three kids that haven’t talked to each other in 10 years, probably don’t make it one of them. Make it maybe a trusted friend or someone in the family, someone that you know is going to be impartial when making those decisions. So the executor is a very big role in that.
PW: Yeah, I can just imagine some of the things that you have to deal with, just thinking. Because for me, my sisters and I get along famously.
PB: Right.
PW: Incredibly well, but you do have those contentions with people, and when it comes to money, people’s personalities change as well.
PB: And a lot of times we see they’re a close family, and then that one person that was the glue holding everybody together when they pass away is when everything blows up. And so then that goes back to what I talked about: Our most expensive, most complicated probates are the ones where the family just can’t stand each other.
PW: How about guardianships? Those types of things.
PB:
We tell people all the time, we can help you limit when your kids get their money so you can make it 25, 30 when they get their money. You can’t help it — physical guardian when they’re under 18.
With guardians, we always tell people the same thing. Some people have a different thing on who they want to maybe manage the finances for their kids, versus who they would just really trust to raise their kids.
We tell people, those don’t have to be the same. You can make people who you really just love their parenting, or a sibling or a parent, you can appoint them as your guardian. You can appoint somebody else as the trustee of their funds, or their financial aspect of it, for sure.
PW: Parker, you ready for this one?
PB: I’m ready.
PW: I guess sometimes I’ll see people do this, and I just go, “Oh.” I get that look on my face. “We’re transferring our house to our child because of Medicaid TennCare planning.” Talk about that; I’ll just let you run.
PB: Yeah, so a few things on that. Our firm doesn’t do a ton of, I would say special needs or planning or anything like that.
PW: I’m not even talking special needs, I’m just trying to talk about somebody who wants to get on Medicaid for long-term care. They’re anticipating it.
PB: Right. One thing we always tell people is Tennessee has a five-year look-back period. If you do that and you start getting any of that money within the next five years, they can negate essentially whatever you do in that transaction.
I mean, a lot of people also say, “Well, if I don’t want to do a trust, why don’t I just put my son on my house now with a right of survivorship?” And I mean you can, but the problem when you do that though is then you’re messing up —
PW: Your son gets sued, and then all of a sudden, you’ve lost your house.
PB: Exactly. It’s better, basis-wise, for them to inherit that asset than for you to put it on now.
PW: Yeah, so he’s talking about tax basis. When you get a step-up in basis where you buy a house and you’ve got $100,000 in it and it’s worth $500,000 when you pass away, you’ve got a $400,000 gain. But if it’s gone and transferred at some point earlier, you can lose out on a lot of that gain-up, step-up, and then end up with a situation where you’ve got a tax problem on your hands.
Then there’s that little situation I have seen. Literally, I have seen where all of a sudden a child inherits something, promising they’re going to take care of their parents, and then all of a sudden, what ends up happening is the child, maybe they get married to somebody that isn’t so great, and then all of a sudden I have seen the parents pushed out of a house.
PB: Right.
PW: I’ve seen that happen. “It’s my house now, and you’re gone.”
PB: And that’s what we warn people about all the time if they’re like, “Hey,” for kind of reasons you said earlier, “we want to put our son on our house. We trust him, we know we still own it essentially because we live there.”
Well, you don’t. Your son owns it at that point. And if he’s a great son, it’s probably not going to be an issue. If he gets the wrong person in his life or in his ear like you said, or lawsuit like you said, then big issue.
PW: And keep in mind also, from a financial planning perspective, if you’re trying to qualify for welfare and you are not in control anywhere any more of where you might live, what area you might live in, the quality of the housing, because you’re not the payer anymore, you might actually trigger something that you wish you hadn’t triggered when it comes down to it. So be very, very conscious of these types of things because I’ve seen people do it.
You can’t do anything about it later on. I’ve seen it turn into nightmarish-type circumstances.
PW: Okay. Parker, talk a little bit about the timeline. How long is this going to take, this process?
PB: Right. That’s usually the first two questions clients ask is how much is this going to cost, and how long is it going to take?
And we talked a little bit about the cost, but as far as the timeline, they greatly vary. So there’s not a, what I tell people, a maximum timeline. Some probates go on for multiple years, some probates are much shorter.
But what happens is when you open up a probate, if it is for someone who’s died, obviously, within the last year, once you get appointed, there is a publication to creditors. So that is a publication in the paper, local paper for the county that you’re doing the probate in, that goes out to any unknown creditors.
And that is usually published twice, and the first time that is published starts what is called a four-month creditor period. So, that is a four-month period that creditors are supposed to file claims against the estate.
The good news about that period is, anybody that you know of that’s a creditor and you notify them of that, it cuts them from that one year to that four-month period. So you can really clean up an estate quicker instead of waiting that year.
PW: Oh, interesting. Yeah.
PB: So I tell people that you’re not going to be able to close probate until that four-month period ends. So I always tell people the easier way to explain the timeline is the minimum is that creditor period.
And then there’s always do you have to file a final estate return, there’s an asset that hasn’t sold yet, things like that. But the minimum timeline is what I tell people as far as that goes.
PW: Okay, so you had mentioned a couple of other things that you said, TennCare releases and those types of things. What on earth? Explain.
PB: So Tennessee, the main creditor they care about above all is TennCare. Do you owe TennCare money?
And so every estate, if you are over 55, because they only come after people over 55, then you have to file for what’s called a TennCare release, which is a simple one-page form where TennCare comes back and either says, “Yes, they did owe us something and they owe us X,” or, “No, they didn’t owe us anything.” So that’s part of the process.
PW: So what he’s talking about there, let’s say you have a situation where you end up in a nursing home and there are expenses that are paid for by Medicaid is what you hear about in the rest of the country, where Medicaid is welfare. And then in Tennessee, you have TennCare.
Then, let’s say that you have an asset that was not in that — your house, or your car, or something like that. And, they want to give you the ability to hang onto your house while you’re in a nursing home. So that’s part of the deal, but they’re going to want to make sure that they get their money back. So that’s what he’s referring to there.
PB: Exactly. And it is most commonly real property, like you said, because you can’t have much else. So, it usually is the house, yeah.
PW: Yeah. And so that is something to keep in mind. Now, people try to pull this thing off on their own.
PB: That is another good reason some of these last a long time. I would say probate is, it’s a complicated process just because there are so many timelines, so many filings, and if you don’t file them the right way or tell the court the right thing at the right time, that’s when you’re getting into bigger issues. Not only for the estate and the people getting their assets, but potentially personally, for you as the executor.
It doesn’t have to be us. Just anybody, any attorney you trust.
PB: I would say 99% of the time we have people tell us that they’re going to try it pro se, they come back to us a month or so later and say, “Help me fix what all has happened,” and then that’s more expensive than if you would’ve just paid an attorney to begin with.
PW: Something just from a financial planner perspective, a lot of times the planner is going to be working with the estate planning attorney. I have a lot of joint meetings with estate planning attorneys where we’re going through some of these things.
This comes from personal experience from people I’ve known where they’ve hired an attorney and the attorney says, “Oh yeah, I can draft a will, I can draft a trust, I can do this type of stuff,” and then you come to find out once the person has passed away that no, they didn’t know anything about this area.
They pulled out a boilerplate type of form. And speaking of boilerplate, that’s another thing, real quick.
What do you think? Some of the nightmares that people run into when they have these little documents they pick up at an office store.
PB: Right. And like I said, we’ve had probates that they’ve worked, but we’ve also had a ton where they’re too cookie-cutter for what you didn’t want or need to be cookie-cutter. And so that causes all kinds of issues.
PW: You don’t know what you don’t know.
PB: Exactly.
PW: Paul Winkler, along with Parker Brown, Fidelis Law. Again, their phone number, 615-370-3010. I’ve worked with these guys for a long, long time.
I really have enjoyed working with you and Robert Patinas over there. You guys have been fantastic.
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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