Why a Will may not be enough

Many people think they want a Will, but if you only have a Will, you have decided that your estate will pass through Probate. A Probate Administration is the slowest and most expensive way to pass your assets to your heirs. When you only have a Will, your family will have to go through probate before they can get their inheritance, which may only take months with a small estate, but larger estates can take years, and it could cost you up to 5% of the entire value of your assets in legal fees. 

What is Probate?

If you die and own any property that is titled to you only, your surviving spouse or your children cannot sell it, because they do not own it. Probate is a court proceeding where the decedent's property gets retitled to his or her heirs or beneficiaries, and this is true whether someone dies Intestate (without a Will) or Testate (with a Will). The difference is that if you die without a will, then the court will decide who your heirs are. If you die with only a Will, the Testator's property will pass to those beneficiaries he or she specifically named in the will. 

 
Probate is a legal proceeding under the jurisdiction and supervision of the Probate Court in the decedent’s county of residence. The probate process consists of the following steps:

• Probate Court appoints an executor
• Executor gathers and values the assets of the deceased
• Executor notifies and pays creditors, pays court costs      and administration expenses
• Executor files tax returns and pays outstanding taxes
• Executor files inventory and accounting reports with      the Probate Court
• Subject to the approval of the Probate court, the      Executor distributes the remaining assets to the intended beneficiaries.

The probate process typically takes anywhere from 4 to 18 months, depending if you have a small or large estate. Perhaps you've read the news about probates taking years longer for famous people with large estates. Michael Jackson, Aretha Franklin, Amy Winehouse, Prince, and Bob Marley all died rich and without any Will, and some of their estates are still being fought over in Probate Court. 

What is Considered a Small Estate?

 
I practice law in California and Tennessee. In California, the executor of an estate can avoid most the probate process and file an affidavit for small estates under Probate Code §13100, however, as of 2022, the value of an estate must be no larger than $184,000. California has a comprehensive set of rules for small estates, for example, the maximum value of real estate that can be transferred using an affidavit (under Probate Code § 13200) also increased—from $55,425 to $61,500. 

 
In Tennessee it is similar. Estates with a value that don’t meet or exceed Tennessee’s “small estate” threshold can likely avoid probate - or at least go through a streamlined, minimal version of it.  In Tennessee, if the value of an estate's property, not including property held jointly with right of survivorship or real estate, is $50,000 or less, he or she may be able to use the summary probate procedure. The procedure is set out in Tennessee Annotated Code §§ 30-4-102 and following.

Spellerberg Law assists its clients with Estate & Business Planning, Probate & Trust Administration, and Elder Law throughout California and Tennessee.

Let's look at one simple comparison, for a married couple. 

Let's assume you went to an attorney and hired him to draft you two wills. He’s feeling charitable, and he charged you only $750 each, so for $1,500 you walk out the door, feeling smart, and put the will in your cake cupboard (or your dad’s old filing cabinet in the garage, or in your safe deposit box(bad idea), or wherever you put important papers). 

Years pass. Happy years. Tough years. You buy a house, collect stocks, don't buy crypto (because you are smart). You buy a Camaro, a fast motorcycle. You wreck the motorcycle. Your leg heals, eventually, but you give up on motorcycles, and park the damn thing in the barn. So you buy a boat, and a vacation home on the lake. Your kids grow up. One, Bernadette, got straight A’s and went to college, and is now a psychiatrist, happily married and living in Pacific Palisades. The other, Dwayne, survived the meth crisis, and, after all that expensive therapy, he’s doing pretty good… He’ll be OK…well, maybe he’ll be OK... but… maybe not. 

You and your wife are lucky enough stay together and live into your 70's. But now the Bell tolls for one of you. 

Since you both have wills, after the first spouse to die, you must probate her estate. This means you must hire an attorney and wait months for the court hearings, for the property to pass to you, the beneficiary. And it wasn't really so expensive, the lawyer only took 8 hours at $250 an hour, and there was the court filing fee of $350, so it only costs $ 2,750 to probate. 

Maybe, you think, now that she's gone, you should sell the family home and the lakeside vacation home. You bought the home for $30,000 and it's appreciated to $550,000, not bad, but you'd like a smaller house. You bought the vacation home for $40,000 and this time you hit the jackpot and find a buyer for $850,000. 

Only after you sell do you discover that for people without a trust, Tennessee only allows a one-half step-up in the basis for the appreciation. With your house, you are lucky. You would have owed half of the capital gains on $83,512.50 (or $41,756.25) but your residence has a special tax rule. You use your $250,000 exclusion amount for the sale of a residence and you owe no tax. But the vacation home isn't so good. If there was no step-up in basis, you would have had a capital gains tax of $115,500, but because you got a step up in basis for half of the capital gains tax on the appreciation of the vacation home, you only owe only $57,750. "Well," you think, "It wasn't the full amount, but I still don't know if I feel lucky or not." But just a note. If you had titled all your appreciated property, including your vacation home into a Tennessee Community Property Trust, you would have gotten a full step-up in basis for both spouses on the first death, and owed $0 in capital gains tax. But you had the inexpensive "Wills-based Estate Plan" and that inexpensive will just cost your estate, and your children, $57,750. 

But you learn, laugh, and live on.... with your will. So what happens after you, the second spouse dies? Your family must again probate your estate, pay court fees, hire an attorney and wait for months (maybe years) for the property to reach your children, who are now the beneficiaries. Also, this probate will probably be a bit more complicated than the last one, so your children will scratch their heads and just pay that probate lawyer whatever he asks, because he doesn't really ask, he just bills by the hour. And the money doesn't come out of your children's pocket, exactly, it will be paid out of the estate. So your kids pay the filing fee (it’s still $350), and when the Lawyer submits his fee statement to the court, this time it is $6,000. The judge issues an order to withdraw the lawyer's money out of the estate, so your children never "feel" it. They’ve never done this before, the kids figure that's just how it works. I mean, you're gone, so who's minding the store, here? By getting sold on a "Will-based Estate Plan", your estate just paid more... much more, than what a trust would have cost. That isn't always the case, in some instances having a will might be cheaper. But your beneficiaries had little bargaining strength with the attorney on the cost, plus your beneficiaries had to wait a year (or more) to get their inheritance.

You see, lawyers who charge a small fee up front for a "Will-based Estate Plan" are banking on the fact that you will hire them to probate your estate. And that is where the "Will-based Estate Plan" lawyer cashes in. In our example, the lawyer charged you $1,500 up front, $3,100 for the first probate, and $6,350 for the second probate. So that's $10,950 for the bargain "Will-based Estate Plan," not to mention you had no trust, so the "Will-based Estate Plan" cost you another $57,750 in Capital Gains tax, tax you wouldn't have paid if you'd had a trust. So the real cost of the "Will-based Estate Plan" was $68,700 subtracted from your estate, plus the lost "opportunity cost" of you beneficiaries not being able to use their inheritance for the months while the money was tied up in the probate.

But you are still worried about that one son, that lovely, funny son, who can’t handle money and might resort to an old addiction if he suddenly got a windfall. You heard a trust can help with that, right? Well, yes it can, but you got the "Will-based Estate Plan." Yes, there can be a spendthrift clause in a will, but then it will have to be administered by the probate court, publicly. And Probate court means more attorney fees. But if you had created a trust from the start, your son's trust could include a Spendthrift trust, with a trusted special trustee, who has his back, who keeps in touch, and has discretion to give him the funds he needs to stay on track, and no more. This way, Dwayne isn’t given a whole pile of cash that he might not know how to use wisely, and it is all handled privately, away from probate court.

 
So what if, Instead, you had chosen a trust? You and your attorney agreed to a flat fee up front, when you have bargaining power, when you can decide what kind of a trust you need. A Trust lets you pass your assets to your heirs in the fastest way possible. When you have a trust, you will fund your trust, so that all the assets belong to the trust, held and controlled by you, the trustee. You can still use your house, your car, your vacation home, your money just like before, and even revoke the trust at any time. 

Remember, Probate court is there to retitle assets that belong to people. Because you already retitled your assets into the trust, you don't own that property, the trust does. So the moment you die, nothing needs to be retitled. The successor trustee simply step in, takes control of the trust, and she follows your rules, (the terms of the trust) and gathers the assets, pays the debts, and disburses all the assets with very little waiting. Again, probate is there to transfer title for people's assets. With a properly funded trust, you technically have no assets, but have complete use of your assets. Because the trust owns your assets, your trust avoids probate, as well as the probate lawyer, the lawyer’s fees, and the probate court fees. And it's all private, your children don't file public records at the courthouse, your children don't attend hearings...

This is how smart, wealthy people quietly avoid taxes and probate, and spend less money doing it. This is also how smart, not-quite-so-rich people quietly avoid taxes and probate. So do you still want your bargain "Will-based Estate Plan," or are you ready for a trust? 

Why not make an appointment, and let's talk.