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Avoiding Probate

Several popular books have been written about "avoiding probate". The probate process varies somewhat from state to state. In New Jersey it is not a traumatic experience. (In other states, such as Florida, it can indeed be expensive and time consuming, which is why revocable trusts are popular in Florida, but not here.) Probate, literally, is "proving" the will, filing it with the Surrogate. What you may object to is: (1) the will becomes a public document, and (2) the particulars (dollars and cents) of estate administration may also become public documents.

The will is indeed a public document, if anyone cares to look at it. Apart from the beneficiaries and immediate family (usually the same group) people rarely do. The alternative to a will, the trust document, may also become a public document should any beneficiary or would-be beneficiary bring a court action.

The dollars and cents of estate administration need not become public documents if all beneficiaries are adults, competent, and satisfied with the administration of the estate. In such case they can approve the executor's account by signing their receipt and release. In New Jersey an executor is not required to automatically file an inventory of the estate. If there is a minor or incompetent beneficiary, the estate administration may need to be filed in and approved in court, but the same would be true for a trust. If there is a dissatisfied beneficiary, the money issues will become public information and subject to court proceedings regardless of whether a will or a trust is used.

The lifetime revocable trust is a good idea for someone who is in poor health, or old enough to be concerned about poor health. Establishing and funding such a trust requires transfer of all securities, and other assets. The trustee begins to function and is entitled to be paid. In some cases the funding of the trust is postponed, and a power of attorney is given so that the attorney-in-fact can transfer the assets to the trust if and when the trust is needed. At death a "pour over" will throws into the trust any property which is not already there.

Joint property, pension and life insurance also avoid probate. Joint property passes to the surviving joint owner. Life insurance and pension pass to the contract beneficiary. Neither is "probate property" controlled by the will. And that is precisely the problem. Regardless of what your will says, this property is unaffected by your will (except for life insurance or pension payable to "my estate", or for which there is no named beneficiary).

It is not unusual to find that a decedent's will leaves everything equally to three children, but all of the decedent's bank accounts are in joint name with the child who lived nearby. Unless this child agrees that this designation was only for convenience, this child will receive more than a one third share.

It is also not unusual for a decedent's will to provide for a credit trust of $650,000.00, which is intended to by-pass the taxable estate of the surviving spouse, and then for the executor to find that the trust cannot be fully funded because the decedent's property was in joint name. (If this situation is caught immediately, it can sometimes be salvaged by use of a disclaimer, if the spouse is willing to disclaim.)

In summary, probate in New Jersey is not anything to be worried about. And non-probate property can sometimes ruin a good estate plan. Thus it is important that your estate plan consider both documents (will and/or trust) and the nature of and title to your property.

Federal and state death taxes will apply to property which you own and control, regardless of whether it is probate property or non-probate property. Avoiding probate does not avoid death taxes - unless you give the property away (and major gifts will also involve taxes).

Corporate fiduciaries may have different fees for administration of probate and non-probate property. Avoidance of fiduciary fees should not dictate the form of your estate plan, because they are less important than providing for your beneficiaries and minimizing death taxes. Fees should be discussed and understood; sometimes they can be negotiated if the normal fee schedule seems inappropriate.

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