Estate Planning: What is Probate?

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As discussed in the last blog post, one of the primary purposes of creating a revocable trust during your lifetime is so that your heirs can avoid or minimize the cost and duration of the probate process.

Probate Defined

Probate is simply the legal process by which the assets of one individual pass to their heirs after the individual has died. When a person dies and they have a Will, whoever they name as the Executor of their Will has the responsibility of determining if there are any assets in the estate that need to go through the probate process. If so, they are responsible for filing a petition with the probate court to begin the probate process. If there is no will, an interested party—typically an heir—can similarly file a petition with the court to open the probate, but this person does so as an administrator of the estate rather than as Executor, since there is no will and the distribution of assets will be determined by intestacy statutes.

The Probate Process

Practically, the probate process involves filing a series of court documents that are due after a certain amount of time has passed. Most administrators and executors will hire an attorney to handle the court aspects of the probate, while the executor and administrator will do more of the legwork as far as accounting for and distributing the assets once the court has approved. A typical probate will cost the estate at least $2,000 and can go up significantly depending on the nature of the estate and the time needed by an attorney to aid the executor of the estate. The probate process usually lasts about a year before assets are free to be distributed, but it can extend beyond that.

Waiver of Administration

Unlike many States that offer an expedited and much simpler probate process for estates of small value, in New Hampshire there are very few ways to avoid the full probate process and qualify for what is called a Waiver of Administration—and having a small estate is not one of those ways. Thus, even if your estate assets are only valued at $2,000, your estate may still be subject to a full probate that may cost more than your total estate value. For your estate to qualify for a Waiver of Administration you have to meet one of the distribution and executor/administrator combinations described in RSA 553:32, with the most common ways being you are survived by your spouse and the spouse is the sole beneficiary, or you created a revocable trust during your lifetime and named your trust as the sole beneficiary under your will.

A Revocable Trust in Estate Planning

As discussed in the blog post from last week, a revocable trust is an optional addition to an estate plan. A revocable trust is a legal entity that you create and transfer assets into during your lifetime. During your lifetime, the assets in this type of trust can be fully used, sold, given away, or invested just as if you still owned them individually, but upon your death (or the death of both spouses if it is a martial revocable trust), the Trust becomes irrevocable, and the assets are distributed or managed pursuant to the instructions you have written into the Trust document.

There are many other types of trusts, most of which are irrevocable and serve very different tax and liability protection purposes, but a revocable trust is primarily limited to the following main benefits:

1.          Probate Avoidance

The first primary benefit for most people is to avoid the probate process. Probate is simply the legal process by which the Probate Court oversees the distribution of the assets of a person after that person has died. A typical probate will cost the estate at least $2,000 and can go up significantly depending on the nature of the estate and the time needed by an attorney to aid the executor of the estate. The probate process usually lasts about a year before assets are free to be distributed. In New Hampshire, there are very few ways to get an expedited and less expensive probate, and having a small estate is not one of those ways. A husband and wife can create a joint trust to own all of their property and thereby avoid the potential for two probates.

Anything owned in a trust is not part of a person’s estate when they die, and thus does not become part of the probate estate. There are other types of asset ownership setups that avoid probate as well, such as pay-on-death beneficiary accounts and joint ownership with rights of survivorship. The problem is that there is almost always some property that is part of the probate estate, especially once both spouses have passed away.

2.          Asset Management and Control

With a trust you have much more flexibility and options when it comes to how assets are to be held or distributed after your death. This is especially useful if minor children are beneficiaries because it allows for the trustee responsible for the financial provision to be separate from the guardian of the children, if desired, and it gives you more control over how resources would be used for the care of your children than if the children were just named as the beneficiary under your will. Distributions can be spread out over many years, held until a certain age, and really customized in many ways to suit your goals and desires.

Weighed against these benefits of setting up a revocable trust is the upfront cost to draft it and the administrative work needed to fully implement it (transferring real property deeds into the trust, retitling vehicles or other titled assets, changing ownership or beneficiary designations of accounts to the trust, etc.). The costs and time needed is not significant, but it is a factor for some that is not needed when only a will governs the distribution of assets. Generally, the financial cost to set up a trust is cheaper than the cost to handle the probate of an estate, but the cost to setup a trust is incurred during your life, whereas the cost of a probate is not incurred until after your death.

Ultimately, it is necessary for you to be comfortable with what a trust is and how it would function. If trusts are implemented without being understood or fully funded, they can end up being more of a nuisance than a benefit. However, when properly implemented, they can save time and money and make the transfer of assets upon your death go much more smoothly for your heirs.

What is Estate Planning?

Although there are many nuances and complexities that are case-specific, for most people, estate planning is the process of thinking through and preparing for end-of-life issues. More specifically, estate planning is the process of evaluating your assets, obligations, and responsibilities in order to proactively put into place a plan for the eventual division, distribution, and management of your estate. An estate plan typically includes a Last Will and Testament, a Power of Attorney, an Advance Directive (sometimes referred to as a Healthcare Directive), and other ancillary documents. A revocable trust is an optional additional tool that is becoming more and more common in New Hampshire as one of the only avenues for most New Hampshire residents to enable their heirs to avoid the time-consuming and costly probate court process.

Ultimately, an estate plan is articulated in a set of documents that provide a process to ensure that your belongings are dealt with in an effective and efficient manner and in accordance with your wishes—one that hopefully eliminates or mitigates the possibility of contention or strife between your surviving loved ones. 

Estate planning is not just for the elderly. One of the most important times to setup an estate plan is when an individual or a couple has minor children. As difficult as it is to contemplate, it is important to make arrangements for the guardianship and financial provision for minor children should both parents die and leave minor children behind. Once setup, an estate plan needs to be updated periodically based on time and certain life events and changes.

Do I need a real estate attorney to buy a house?

In the purchase or sale of real estate in New Hampshire, an attorney can fulfill two different functions:

1.       Handling the title search, escrow of funds, handling of the closing, and issuance of title insurance (the same function as a title company); and/or

2.       Representing the Buyer or Seller in the transaction.

Many people don’t know that attorneys in New Hampshire can handle all that is needed for the closing of real property, and generally do so at comparable prices to title companies. Many closing costs such as title insurance premiums, taxes, and recording fees are fixed no matter where a closing takes place.

When there are problems or legal questions that arise during the course of a real estate transaction, real estate agents and title companies are not allowed to give legal advice to their clients. Thus, one of the main advantages to having an attorney handle the closing is that the attorney can assist with potential legal questions and needs that may arise, such as deviations from the standard realtor purchase and sale agreement form, questions on how to take title, and forming LLCs or trusts to take title under.

If you are represented by a real estate agent, our office can serve as an inexpensive supplement to review a proposed purchase and sale agreement and make sure nothing additional should be added or tweaked, or we can simply handle the closing for you. For buyers who are not represented by a real estate agent, our office can assist you in drafting a proposing a purchase and sale agreement, represent you while you are under contract, and handle all of the title and escrow for you and the seller to get you through closing.

If you are considering buying a house or other real property, or are under contract to do so, please contact our office to see if we might be of assistance to you. We handle both residential and commercial real estate transactions.

2019 Estate Plan Update

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At this time of the year, we like to remind our clients to take a look at their existing estate plans to evaluate whether any changes are needed. In general, we recommend that you undertake at least a cursory review of your current estate plan on an annual basis. A more in-depth review is necessary if there have been significant changes in your personal or financial circumstances, or if your goals for the distributions of assets has changed since your current estate plan was established.

The following questions may be useful as you consider your current estate plan:

1.       Is there a change in your family situation? (births, marriages, divorces, deaths)

2.       Has the size of your estate changed substantially?

3.       If you have a trust in place, have all of your newly acquired property and accounts been titled correctly?

4.       Are your beneficiary designations current?

5.       If you own a business, do you have a plan for your business succession when you will be stepping out, or when you pass away?

6.       Are there any changes necessary to the people you named as power of attorney, executor, guardian of your minor children, successor trustee, and agent for healthcare decisions?

 

As for taxes, there is not much change that will affect estate plans in New Hampshire. The following is the summary of the New Hampshire and federal estate and gift tax amounts for 2019:

New Hampshire Estate and Gift Tax Laws:

·         New Hampshire still does not levy any tax on estates or gifts.

Changes to Federal Estate and Gift Tax Laws:

·         Federal Exemption Amount. The per person lifetime exemption for estate, gift, and GST taxes has increased to $11,400,000 (up from $11,180,000 in 2018). The top marginal rate remains at 40%. Thus, married couples with proper estate planning will be able to transfer $22,800,000 free of federal estate tax.

·         Annual Gift Exclusion Amount. The annual gift exclusion amount remains at $15,000 per recipient. This is the amount each individual can gift to any number of individual recipients without reducing his lifetime federal exemption amount.

If you already have an estate plan set up with us, making changes is generally straight forward and much less costly than the initial setup of the plan. Please feel free to contact us if you know of any changes you would like to make, or if you have any questions about whether changes might be needed.

Grand Opening & Open House

Yesterday we had our Grand Opening here at 16 Depot Street, and we had a great turnout.

We were joined by the Wolfeboro Area Chamber of Commerce for our ribbon cutting ceremony around 11:00 a.m. and then we were able to meet many members of the community who stopped in to visit.

Although we have been operating on some level as we've brought everything online over the last few months, it is great to have our official launch day behind us.

We are thankful to everyone who has helped us get to this point, and we thank everyone who was able to make it out yesterday. May this be the start of a very long endeavor, and may we be of service to Wolfeboro and the Lakes Region for years to come.