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Mary Owens: Alternative titling options to assist in avoiding probate delays

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Proper titling of your assets is very important for the successful administration of your estate, and to safeguard the process in which your assets are distributed per your intentions after your death.

Last month I went over all the various types of assets you would most likely own and how they are administrated after your death. The areas I covered were:

Assets that are not includable in probate because they have a designated beneficiary attached to them

Assets that are not includable in probate because they are held in joint tenancy

Thoughtful titling of assets matters in estate administration. It frequently assists in maintaining family harmony. Forethought is a powerful aide in estate administration.

Assets that are not includable in probate because they are titled in the name of a trust

Assets that are subject to probate

If you did not get a chance to read last month’s column, please go online now and review it so you will gain a clearer understanding of this month’s topic of alternative titling options to assist in avoiding unnecessary probate delays and ease your estate administrative cash flow burdens.

A common challenge during estate administration is the management of cash. The last bills of the estate and the administrative costs must be paid. To better understand this problem, a simple example is always helpful.

Let’s start with Susie, retiree in her early 80s. She has a monthly pension and a comfortable amount of social security income. She owns a home, but it does have a mortgage. Her prior home was free and clear of debt, but she took out a mortgage after she sold her home in a rural area and moved to a more expensive urban area to be closer to her daughter. None of her children knew she took out a mortgage when she moved. It never even occurred to them that their mom had to get a mortgage to be able to purchase a home closer to one of her children, which they all wanted her to do for years.

Susie’s house and a small checking account of $10,000 are in her single name. She has a $100,000 IRA which she designated one third each to be left to her three children, leaving it to them directly, as individuals.

Susie has been having some memory issues lately and has not been paying her bills timely. Her mortgage company has been paid late several times and they are not happy with her. To avoid having this problem continue, Susie agrees to have the bank pay her mortgage out of her checking account every month via an automatic ACH payment.

Susie’s confusion begins to rise however, and she causes a serious automobile accident by failing to stop at a stop sign. Both she and the other occupants of the other car were seriously injured. All three children rush to her side while she is in the hospital. Unfortunately, Susie dies from her internal injuries.

Together the three children go through her personal belongings and financial records. They locate her will, IRA statements and her small checking account. The will named the eldest child Nancy, as the executor of her estate. Her two brothers agree that this was a good choice since she lived so close to her mom.

All the assets are to be split equally between the three children. They also agree that Nancy should put the house up for sale as soon as possible and get their mom’s estate wrapped up as quickly as possible.

Nancy contacts their attorney to get guidance and assistance in the probate administration of her mom’s estate. He indicates to Nancy that the IRA may have to be “marshalled” into her control to make sure she has enough funds to pay the bills of the estate. Her brothers are furious and demand the IRA be distributed to all three of them immediately. Her younger brother David has already provided the IRA custodian Susie’s death certificate and was told they would be getting the funds as soon as they all opened their own individual IRA accounts. David already spent his share on a new car and is determined that the IRA funds are not going to be delayed coming to him.

After a title search, Nancy discovers that the house has a mortgage. The checking account is now lower, since the first ACH payment for the house has hit the bank account, but Susie’s pension income is no longer there to replenish the bank account balance. She also has huge medical bills to pay, and the occupants of the other car involved in the accident are now demanding their bills be paid as well. The small checking account would not pay all the bills nor keep the mortgage current unless the house sells immediately. Wisely, Nancy listens to her attorney and takes the necessary steps to block the distribution of the IRA account. Her brothers are furious! Harsh words start to fly, and their relationship deteriorates rapidly. How could this mess have been avoided? The answer is simple: proper estate planning along with thought given to estate administration liquidity needs. Cash is always king, and the estate administrator with access to cash usually experiences less family stress.

If Susie had a trust, she could have designated her IRA to be left to the trust with any unused portion needed for estate administration expenses to be rolled into each child’s IRA account. If this had been done, Nancy likely would have avoided the harsh words with her two brothers. Even if the brothers found the IRA statement after their mom’s death, the indicated beneficiary would have been the trust, not the three children directly. The estate cash liquidity issues would have been solved from the beginning. If her house and the checking account were also in the name of the trust, this estate would not be subject to probate at all. Nancy would have been in administrative control of the estate rather quickly after her mother’s death.

Thoughtful titling of assets matters in estate administration. It frequently assists in maintaining family harmony. Forethought is a powerful aide in estate administration.

Next month I will be covering how preplanning IRA withdrawals prior to death can assist in improving estate liquidity and save on estate taxes in the process.

Mary Owens, Founder, Owens Estate & Wealth Strategies Group, Financial Advisor, RJFS, 426 Sutton Way, Suite 110, Grass Valley, CA 95945, 530-272-7500. Securities offered through Raymond James Financial Services, Inc., Member FINRA/SIPC. Owens Estate and Wealth Strategies Group is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax, legal or mortgage issues, these matters should be discussed with the appropriate professional. Any opinions are those of Mary Owens and not necessarily those of Raymond James.


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