Sometimes you hear bits and pieces of information about estate planning that can lead you in the wrong direction. This most often occurs when you are looking for how to avoid probate.
If you use a simple will to state your final wishes, your executor acts as the administrator. The executor cannot complete the administration without court supervision.
In Oklahoma, the executor is required to admit the will to probate and the probate court oversees the proceedings.
During probate, notice is provided to potential heirs and creditors and they are given time to intervene. The executor must obtain a tax identification number called an Employer Identification Number (EIN) for the estate, and they need to open an estate bank account.
Assets must be inventoried and prepared for distribution, final debts resolved, and when everything is done to the court’s satisfaction, the assets will be distributed to the heirs.
Probate serves a purpose, but there are negative aspects for the rightful heirs to an estate. It typically takes 9 months to two years to complete probate and it can take considerably longer in some instances.
Expenses continue to accrue while the estate is in probate and this unnecessary red ink reduces the value of the estate before it can be transferred to the heirs. Since probate is a public proceeding, anyone interested can access the records to find out how the assets will be or were distributed.
Some asset transfers are not subject to probate. People hear about them and see “simple solutions.” In reality, these approaches can become very complicated.
Joint tenancy is one such estate planning solution. If you own property, you can add someone else as a co-owner. Done correctly, this creates a joint tenancy with right of survivorship. This means the surviving joint tenant assumes ownership of the deceased joint tenant’s interest in the property by operation of law. This transfer does not require probate, but certain actions are required for it to take effect.
This may sound good on the surface, but joint tenancy can be a risky business. The person added as a joint tenant immediately becomes a co-owner. If they are targeted by the IRS or a litigant seeking redress, their portion of the property might not be protected.
Also, before the property can be sold, all joint tenants (and spouses, if married) have to agree on the sale of the property and all joint tenants will share in the proceeds of the sale. This can be a significant drawback, because you lose control of your property.
When you open a bank or brokerage account, you can make it a joint account, which means the joint owner has full access to the funds. You can also make it a payable on death or transfer on death account. By adding a beneficiary, at your death the beneficiary owns the account.
Another problem is that people sometimes establish such accounts and tell the beneficiaries to distribute assets among certain beneficiaries when they pass. The beneficiary cannot legally be compelled to follow these verbal instructions.
A Better Alternative
By using a revocable living trust, you can safely, effectively and efficiently transfer probate-free assets. You do not lose control since you serve as the trustee while you are alive and well.
After your passing, the successor trustee completes the administrative requirements and distributes your assets according to your wishes. These distributions are not subject to probate.
This is one benefit, but there are many others. You can include spendthrift provisions that protect the trust assets from the beneficiaries’ creditors. You can also instruct the trustee to distribute assets incrementally over an extended period of time, provide divorce protection, or specify the purposes for which assets are to be used.
We Are Here to Help!
Today is the day for action if you have been going through life without a carefully constructed estate plan. We can review your situation and help you devise a custom crafted plan that ideally suits your needs.
You can schedule a consultation with an Oklahoma City estate planning lawyer if you call us at 405-843-6100. Or you can fill out our contact form if you would rather send us a message.