I saw a post on Facebook a couple weeks ago giving legal advice about how to avoid probate. This was one of those posts that was acting like a PSA to encourage people to get their affairs in order. I wholeheartedly agree that every adult should take steps to get their affairs in order. However, I do not think taking advice from a post or comment on Facebook (or TikTok) that was obviously created by a non-lawyer is the way to go.
While the information in the post was not technically wrong, it was not state specific and encouraged people to do things that require a good understanding of state legal requirements for wills, trusts, deed preparation, and probate. In this series, we’re going to walk through some of the myths I’ve seen on social media recently, and give you the facts about probate, wills & trusts. Last week, we talked about probate and wills. This week, we’ll discuss how to avoid probate.
Myth #5: Probate can be avoided by retitling assets and designating beneficiaries.
Truth: Yes…as long as you have planned properly. Last week we talked about joint ownership and transfer on death (TOD) assets. While it’s possible to structure your assets in such a way that everything you own is jointly owned or will pass outside the probate process to a designated beneficiary, this must be done carefully and properly to completely avoid probate. Maryland doesn’t recognize TOD deeds, so real property cannot pass this way.
Another thing to consider, especially with jointly owned property, is what happens if both spouses/owners die at the same time, or if the beneficiary dies before you and you didn’t update your beneficiary designation. I talk to couples all the time who own all of their assets jointly, which is great. But they haven’t considered the possibility that they could both die in the same car accident, or the second spouse might die shortly after the first before updating their estate plan, leaving the assets to probate upon the second spouse’s death. So even using this type of planning strategy to avoid probate takes some additional thought beyond simply jointly titling assets or naming TOD beneficiaries and thinking you’ve avoided probate.
The best way to avoid probate is by setting up a revocable living trust.
Myth #6: If you put your property into a trust, you lose all control over it.
Truth: It depends on the type of trust. I’m sure you’ve heard the word “trust” as it relates to estate planning or owning assets. Trusts have become a common tool used in estate planning, not only for wealthy people, but also for people who want to avoid probate. There are a lot of different types of trusts and each one serves a different purpose and has different legal requirements.
Today, we are talking about revocable living trusts (RLT), which are used primarily for probate avoidance purposes. These trusts do not offer creditor protection or tax benefits. Here’s how they work:
Trusts 101: A trust is an agreement between three (or more) parties. (1) The Grantor (also called Settlor) is the party that creates the trust and puts assets into it. (2) The Trustee (or Trustees) is the party that manages those assets according to the terms spelled out in the trust agreement. (3) The Beneficiaries are the parties who get to use or benefit from the assets held in the trust. With a RLT, you are generally acting in all three roles. You (the Grantor) retitle your assets to the name of the trust to remove them from your personal probate estate. You (the Trustee) manage/control those assets, for your (the beneficiary) own use and benefit.
Because you still have complete control over your assets, and can change (or revoke) the terms whenever you want, they are still included in your taxable estate (and offer no tax benefit), but they are not included in your probate estate. So when you die, you as an individual, do not have an estate that needs to be administered through the court process. Voila! Probate has been avoided.
WARNING: You must properly transfer your assets to the RLT to avoid probate.
Myth #7: You don’t need a lawyer to set up a trust for you.
Truth: This one is true. You can set up a trust online using one of the various legal websites out there. You know what they are, so I won’t bother naming them. While the concept of a trust and how it works is quite simple, there are a lot of complexities and nuances that go into setting up the terms of the trust so it works the way you want it to when you are gone. So the question shouldn’t be “can you do it yourself”, but rather “should you do it yourself.” If you don’t know what things to consider when creating your trust because you don’t have the legal training a lawyer does, then creating one yourself could actually end up leading to a result you weren’t thinking about after you’re gone. And the worst part about that is, you won’t even know that your trust failed because you’re dead. And by then, there’s no way to change it because it becomes IRREVOCABLE upon your death. That’s probably not what you had in mind when you decided to create your RLT yourself to save a few bucks.
Myth #8: Working with a lawyer is expensive.
Truth: Cost is relative. It’s no secret that lawyers are not free. And most are not what you would consider cheap. The bottom line is: you get what you pay for. I actually wrote a blog discussing How Much Your Estate Plan Should Cost a few weeks ago.
In a world of DIY options, people have decided that they should take on projects that were traditionally done by professionals all on their own. And if we’re talking about putting a deck on your house, replacing a transmission, or dying your hair, that’s fine. Give it a go and see how it turns out. Worst case scenario, you completely mess it up and can go to a professional to fix it and do it right.
But estate planning is different. Because your plan won’t go into effect until you are dead, you don’t know if you’ve messed it up. And by then, it’s way too late to be fixed. So when you are thinking about whether to invest some money up front to work with an experienced estate planning lawyer to ensure your plan is done correctly the first time or to try it yourself, your definition of expensive may change. If you still aren’t sure, ask your family if they would rather you work with a lawyer or do it yourself online to save some money now. After all, they will be the ones dealing with it when you’re gone. So the choice should really be up to them, don’t you think?
The Takeaway: Don’t take legal advice from non-lawyers – on social media or otherwise.
There is a reason that lawyers spend a lot of time and money going through law school and taking continuing education classes. The law is constantly changing, and it takes this experience and training to ensure their clients are adequately protected. This is also why they charge higher rates than DIY options on the internet. Even if your assets and estate plan are “simple,” we strongly encourage you to at least have a consultation with an experienced estate planning attorney so see if there is anything you may not have considered before making the decision to do it yourself.
If you have any questions, or would like us to review your estate plan, schedule a free 15 minute call with us.