You are a financial advisor. From my perspective as an estate planning attorney, I see you working with your clients to create unique financial plans to meet their individual or family goals. You help them make their hard-earned money work for them — for today, for their future, and for the future of their loved ones. You guide them through saving, investing and protecting their assets. And you likely advise them to create an estate plan so that their wishes and goals continue to be honored and accomplished even after they pass away.
While there are many risks and uncertainties inherent in financial planning, there is one thing that can wreck any plan when someone passes away: probate.
In my world, probate has become a four-letter word. When people talk to me about it, they seem to fear it more than death itself. But few truly understand why.
Probate is the process of validating a will. At its core, it is a legal procedure that takes a deceased person’s assets and retitles them to someone else. If the deceased person did not have a will, then their property is distributed via their state’s intestate or inheritance laws. If the person who passed away executed a legally valid will that clearly expresses their desired distribution of their estate, then probate is supposed to provide a court-supervised, orderly change of title according to their wishes.
In theory, or even blackletter law, probate should be the straightforward administration of a deceased person’s estate. Unfortunately, while probate laws were written to help people change title on the assets of someone who died, and most of the folks who work in the court system have the best of intentions, even the simplest of probates can be a nightmare.
Failure to Plan
When I’m educating people about probate during seminars and webinars, the first thing I want them to understand is that if they do not have an estate plan, or if they use a will as their primary planning instrument, they are relinquishing control of everything they own. Everything they worked their entire life to save and build (and that their financial advisor helped them with) is now in the hands of a government bureaucracy.
People tend to forget that the judicial system is the third branch of the government, and that it, like everything else run by the government, can be an overburdened, underfunded, bureaucratic mess.
Judges, lawyers and even juries become intimately involved in your affairs, and all of it is open to the public – there’s nothing private in probate court.
Judges are people, and while we hope they will live up to the ideal of the fair and impartial officer of the court, human nature is what it is. As an attorney who has witnessed judges knowingly ignoring the law, allowing personal and political views to guide their decisions, or just having bad days, I do all I can to help people stay out of court and avoid giving up control of their life’s work.
Juries, as we all know, are unpredictable, at best.
Whether it’s a judge, a jury, or both deciding how a decedent’s estate is to be distributed, one thing is for sure – the decedent is no longer in control of his or her estate. Aretha Franklin’s estate is a perfect example.
When Aretha Franklin died in 2018, her loved ones did not believe that she left a plan or a will for her $80 million estate. Then, two different handwritten documents were found. One in a locked cabinet and the other under couch cushions.
Family members argued over whether or not they were wills, and if they were, which one contained her last wishes. Their arguing become a court case, and eventually a six-person jury decided that the handwritten pages found in the couch met the requirements of the State of Michigan to be a valid will.
Then a judge decided that these notebook pages with her hard-to-read, mess of a document, complete with cross-outs and notes in the margin, was the most recent and therefore final wishes of the Queen of Soul. Click here to see the document. After 5 years of legal and family battles, and millions of dollars in legal fees, a jury and a judge decided Aretha Franklin’s final wishes, but did they R E S P E C T her true intentions? We will never know.
Even if court worked as it should in a model world, with judges living up to the unbiased legal guides we hope they will be and lawyers acting in their clients’ best interests, probating an estate will still cost your clients money, time and privacy that they can otherwise protect.
Money
The monetary costs of probate vary from state to state, ranging from 3% to 7% or more of the fair market value of the estate.
Some states have statutorily set fees based on a percentage of the estate, and others permit “reasonable fees.” Attorneys working under the “reasonable fees” rules can charge by the hour or flat fees. You can find information about probate costs for all 50 states here.
California, Arkansas, Florida, Iowa, Missouri, Montana, and Wyoming, probate fees are set by statute.
In California, where I practice, the statute entitles the attorney for the estate and executor to what I call the 4-3-2-1 rule. It looks like this:
4% of the first $100,000.
3% of the next $100,000.
2% of the next $800,000.
1% of the next $9,000,000.
0.5% of the next $15,000,000.
Reasonable fees for amounts above $25,000,000.
Judges in each county determine what are reasonable hourly rates. They don’t often call out attorneys who charge even obscene amounts, but they share their feelings with colleagues and that can eventually hurt an attorney’s reputation in the community — which means it can damage their bottom line, too. That’s what some of my colleagues who regularly practice in probate court tell me.
For a $1,000,000 estate (and that is the fair market value at the date of death), attorney and personal representative fees can add up to $64,000. That does not include court costs, accountant fees and appraisal fees. And these fees are for a smooth, uncontested probate.
An attorney can earn $23,000 based on the figures above, and the personal representatives are at least entitled to that amount. If a husband dies leaving everything in the estate to his wife, she will be inheriting everything, so she likely won’t take that amount off the top. But, often, when both parents pass away leaving more than one child and they name one as executor, that child will take the money. It does require them to put in some time and effort — and that can lead to family discord, which, along with keeping families out of court, is something I try to avoid with well-considered planning.
Time
Like every other government-run system, the probate procedure takes longer than it should most of the time. Across the country, simple, straightforward probates can take nine months or longer to complete. If issues arise, including the existence of multiple wills, will contests by legal heirs, and elder abuse claims, probates can take years to conclude.
When Prince died unexpectedly in 2016, he did so without any legal plan in place. A six-year legal battle followed where a court had to determine who Prince’s legal heirs were under Michigan law and how his estate would be distributed to them.
Prince left every decision about who will inherit his life’s work, the iconic music produced from his passion and talent and time, up to the laws and courts.
Privacy
Everything in probate court, or just about any court is open to the public.( I was court-appointed counsel in Los Angeles County’s Mental Health Court, which is part of the probate system, but an exception to the public rule.) That means anyone can attend probate court hearings, and probate files are open to the public.
Once admitted to probate, wills are public record. Anyone can see them. And, unfortunately, there are people out there looking to take advantage of grieving families.
One scam I know of works like this:
In California, the probate code requires that a copy of the Notice of Petition to Administer Estate be published three times in a newspaper of general circulation in the city where the deceased resided, with at least five days between the first and last publication.
A grieving widow receives a call from a man who sends his condolences. This man smoothly weaves a tale full of family details found in the will and petition to convince her that he learned all of this in close conversations with her husband and explains that he did work for her husband or worked with her husband. Unfortunately, he claims, her late husband still owes him around $15,000.
He tells her that he knows she and her family are going to have to deal with a lengthy and expensive court process and he’d like to help and not have to wait years to be paid. So, if she will pay him $5000, he will write off the rest of the debt out of respect for her husband. The family is on an emotional rollercoaster, is spending thousands of dollars on a casket and funeral expenses, and isn’t all that liquid. This opportunity, thanks to the kindness of someone who seemingly was touched by her husband enough to cancel $10,000 in debt, sounds pretty good.
Because of the publication requirement, this can happen in most states. But some, like New York, allow executors to skip this step. This means creditors have to be on top of knowing when folks who owe them money die.
Open Clients’ Eyes
While sad stories of the rich and famous dying without properly executed estate plans shock the public and provide great clickbait for journalists, they do not seem to become tales of caution for the rest of us. It’s great fodder for watercooler talk and celebrity gossip, but still less than one-third of all Americans have any sort of planning in place.
As an advisor, you likely already help your clients plan for the inevitable by guiding them through making beneficiary designation decisions on investment and retirement accounts. Beneficiary designations are a great way to pass on the wealth you’ve helped them create to whom they want while avoiding probate. But there’s more value you can add by opening their eyes to the potential dangers of the rest of their estate going through probate.
They come to you because they want to control and manage their financial world with the help of a professional. And when they learn that by going through probate they will be relinquishing that control to the unpredictable legal system, hopefully they will see the importance of estate planning. The celebrity tales of woe are great conversation starters that can get your clients to share their personal probate stories or the concerns that might be keeping them up at night.
Clients will have to invest both money and time into proper estate planning, but it will pale in comparison to the costs of probate (control, money, time and privacy). And you can be the trusted advisor who brings them the peace of mind they need to know that no matter what the future brings, they’ve done all they can to protect themselves and their loved ones.
Seth Bier and his wife, Leann, run Bier Law, an estate planning law firm in Los Angeles’ South Bay. Their goal is to educate and empower individuals to make informed decisions about their future, providing them with the peace of mind that comes with being prepared and free to live their lives without worry. Seth can be reached at info@bier-law.com or (323) 999-1230.
