At first reading, this post may seem less about quality aging and more about not aging at all (meaning dying), but it’s not a bummer. I promise. Since money and financial issues can cause us all so much stress, this is a stress-buster to offer some extra peace of mind.

Over the winter I attended a presentation by a Certified Financial Planner (CFP). Let me confirm that this was not one of those free dinners, held to promote investment management or Living Trusts. I would take a guess that you have all received these invitations in the mail. I’d be exaggerating to say I get one a day, but I would be close.

Sadly, having attended a similar event once long ago, which promoted real estate investing, I understand the approach. I assume these free-dinner presenters would try to twist my arm to purchase services to create a Living Trust (LT), just to “ease my fears.” So when I heard a CFP claim “Probate is NOT the End of the World” I was stunned and baffled.

In terms of clichés, I didn’t fall off my chair, but my jaw did drop. I decided to request an interview with this guy to see what he had to offer in the peace-of-mind department. That is what I want to share with you.

I arranged a meeting with him on a cold, windy day at a local coffee shop in Southern Oregon. Armed with a list of perhaps-naïve questions, I was prepared to let my ignorance show. However, he made the information clear and easy to understand.

Our Meeting

David Savage, a Certified Financial Planner Professional is located in southern Oregon. He began our conversation by recapping that “probate is a legal process whereby a court oversees the distribution of assets left by a deceased person”. To my quizzing, he added that “Yes, some attorneys travel around and give workshops on the evils of probate in order to promote living trusts, which avoid probate.”

Before proceeding, let me be clear, David is not suggesting probate as an actual financial planning tool. More I think he is trying to offer us consolation, so that on our death bed the last thought we have is not “oh gosh, everything is going to probate,” but instead something like “I am lucky to have had love in my life.”

Whether his clients are in his community or at a distance, he seems to see part of his service to them as pointing out manipulative scare tactics which could persuade them into unnecessary actions.

Nevertheless, he is quick to say that certain steps are vital, and strongly encourages everyone to have a will, a “Power-of-Attorney and an Advance Directive” filled out. He didn’t happen to specify it, but I assume he meant all of these should be notarized at the least.

Regarding the Living Trust, David explained…

“A living trust can be a useful estate planning tool for many people, but may not always be worth the added cost and effort in my opinion.”

According to David, there are several purposes of a Living Trust: to avoid probate, reduce attorney fees and make settlement periods “potentially” quicker. He added that once in a while you come across the folks who want to avoid the publicity of probate.

They may resent any public announcement, such as notice of the proceedings in the local paper or their name in the classified section to alert potential creditors. (I didn’t voice this to David, but I did have to wonder how they would KNOW. Newspaper subscription in heaven?) A Living Trust does not have the same type of publicity requirements.

While those points above are possible benefits of a LT, there are tradeoffs. Trusts are more expensive to set up and have to be “funded” correctly, with assets being retitled into the trust. Additionally, it is essential to remember that when making a decision to establish a LT or not, some assets are NON-PROBATABLE (outside of probate procedures to begin with).

This is rarely pointed out as a consideration. David gave a couple examples of why this is relevant and some things that would not go to probate even without a LT.

Non-Probatable

• Retirement accounts can be left to heirs through a beneficiary designation, bypassing probate. Another good reason to keep your accounts up to date with accurate beneficiary information.
• Banking or taxable brokerage accounts can be in joint ownership with another name on your account (as long as you truly trust the new “co-owner”). They can also be set up with a designation of “transfer on death” (TOD) or “payable on death” (POD). Both bypass probate.
• Life insurance that lists a beneficiary as someone other than the deceased.
• Property (such as a house) with a legal designation listed as “joint tenancy with right of survivorship” immediately goes to the spouse. But after the 2nd death it is still not probatable if you were to put someone else’s name (like your kids) as “joint owners.” This isn’t for everyone, but still an option appropriate at times.

David added this further point of clarification on the last point:

“It’s important to remember that if you put children on the title of a house, or make them joint owners of a brokerage account, that this constitutes a gift and could have tax consequences.”

He clarifies that, for instance, “normally an asset gets ‘stepped up in basis’ at death, meaning that the gains from the time they purchased the asset to the date of their death are forgiven. If you put a child on the title, they would lose the step-up.”

After writing about this in an earlier piece Probate Not the End of the World, on my own site, I heard from one of my favorite bloggers.

Darrow Kirkpatrick writes and manages the Can I Retire Yet blog, a fantastic, down-to-earth site offering practical advice. He said…

“This confirms my own dubious impression of living trusts, and preference for simple TOD/POD mechanisms.”

Darrow added that to make it even easier you can peruse one more step. He explained that “by executing these simple legal provisions directly with your financial institutions, you arrange for certain accounts to go immediately to heirs without any need for those assets to pass through the complexity and cost of probate. It’s simple, it’s cheap, and it’s nearly foolproof.”

Building on the simple idea of joint accounts to avoid probate, Darrow suggested a further idea that we often don’t think about regarding such planning. He said that the mechanism of joint accounts “can also make sense for liabilities, such as credit cards accounts. If those [accounts] aren’t joint, they are likely to be closed upon death.”

He warns that if such a closure would be a hardship, or you have automatic payment arrangements for any of your bills, that it would be a help for survivors if these accounts were in joint names.

Let me mention a personal experience from last year in which I THOUGHT that I had a joint account on a credit card (and used the credit card with my name on it – all the time). After attempting to make a small revision to the profile, I found out that technically it was not a joint account and I had to change the application. So, make no assumptions.

You can read more on the differences between probatable and non-probatable at Elder Law Answers.

Big Bucks or Little Bucks

The amount of your estate, whether at the high end or the low, is not the particular issue here. It is how things are set up or titled. David Savage gave an example with a significant estate. He used round figurers of a $2 million estate (which many of us may only aspire to), but it helps make the math a bit easier.

So let’s look at a $2 million estate with a house worth $500K, another $500K in brokerage or bank accounts and $1 million in an IRA. With a beneficiary’s name on the IRA account, it would not be part of probate.

If the house was in “joint ownership” with a child or someone else that too would not be probatable.

Even the bank and brokerage accounts might be listed as either TOD, POD, or in joint ownership, again bypassing probate.

Another question formed in my mind after David said “with larger estates, a living trust may make sense.” My question? What is a large estate? How big is big?

Of course, his answer was something I will paraphrase as “it depends.” But he added that in his “opinion” as a ROUGH rule of thumb, assets somewhere around $500K start to suggest the need for a licensed attorney that can “help you weigh the pros and cons.” But as can be shown from above, it isn’t simply how large your estate is, it also depends on how complex your financial portfolio is and if you have only non-probatable assets.

Darrow Kirkpatrick wrote that for most simple estates, it’s his opinion that Living Trusts are “expensive and complex overkill.”

Where You Live Matters

Unfortunately, all states are not the same in their laws or regulations. Some states, like where I live in Oregon, have a flat attorney’s fee for disposing of probate matters. Good. No surprises there.

But others, such as California, Arkansas, Florida, Iowa, Missouri, Montana and Wyoming, work on a commission and a large estate could get socked but good. Especially since some of those commissions are based on GROSS value of assets. Best to know that upfront. David confirmed that “hourly rate states will generally be cheaper.” Sadly, only the very wealthy appear to get any kind of graduated “deal.”

To check out what kind of system your state functions with, visit the page on NoLo – Law for All website that covers probate lawyer fees and billing for handling resolution of probate estates.

There does not seem to be any site that clearly allows you to compare all states side-by-side, but this site will get you started in finding an answer for your own location.

Who Does a Trust Benefit?

Clearly, a LT isn’t something that would benefit US now – or ever. It’s not for you, it is basically a benefit for your heirs. You are doing them a favor. David agreed that this is part of the goal and said…

“Rather than go through all the trouble and expense of having a living trust, you could let the heirs bear the expense and time since they’re the beneficiaries.”

Again, he is not promoting probate as a financial strategy. Instead, David is simply pointing out particular options for consideration that are not always clarified. And Darrow Kirkpatrick notes that probate can cost your heirs 10% or more.

But, if you are under the assumption that your gift to your heirs is good enough and that dealing with these legal issues is not that onerous, you may not feel a LT is necessary.

Conversely, if you are looking to leave them one more gift (namely “ease”) then you may want to establish a LT yourself, and settle matters. Or you may wish to specify the details in your will and take advantage of the non-probatable approaches.

Personal Note

I mentioned on my own site Aging with Pizzazz that long ago, after reading a book on “Making Your Own Living Trust,” I figured “oh, how hard can it be?” (And it isn’t really THAT hard.) Therefore I helped my mother develop one. Long story short, I prepared lots of it right… BUT it still needed a bit of later professional intervention. Oops.

That brings us to David’s last, and not unexpected, piece of advice. “For the pros and cons of wills vs. living trusts for your personal situation see a competent estate attorney.” He further advised “and try to avoid the ‘trust mill’ attorneys.”

Personally, I might add if you do-it-yourself, then make sure you immediately follow up with an attorney. True, it may save you money if you start the process at home, even if your learning curve is immense. Nevertheless, having it professionally evaluated soon after will definitely save you money, effort and anxiety by avoiding any later unpleasant revelations. Otherwise plan on lots of research.

Speaking of professional help, let’s change tracks from law attorneys to financial professionals. Such specialized fiscal services are not unwarranted even if you choose a plan for only non-probatable assets.

A Certified Financial Planner (CFP) takes no commission and by definition is a legal fiduciary agent, obligated to put a client’s interest first. (Think antithesis of Bernie Maddof.) Such a professional may charge you a one-time fee to review your plans. Even if some of your plans are simply centered on approaches that avoid probate, the fee is worth your peace of mind.

With an even more positive message, in his article Do-It-Yourself Estate Planning, Darrow Kirkpatrick ends by contemplating a useful outlook…

“An annual review of your estate plans can be a powerful reminder that none of us has unlimited time on this earth. So it’s important to make the best possible use of the time we’ve got. Presumably that means engaging in the activities that are most meaningful to us, and most helpful to others. And, it probably means spending as little time as possible on estate and taxes.”

Finally, thanks to David Savage for his helpful, professional advice and willingness to allow me to share it.

Have you learned anything from a meeting with a CFP or an estate planner that surprised you? Or eased your mind in some way? Please join the conversation in the comments below.