Toby Mathis, Esq. explains the downfalls of probate, especially when it comes to real estate, and how to factor real estate into your overall estate plan.
End-of-life planning can be uncomfortable or challenging, but it’s an important piece of your overall financial plan. There are a lot of misconceptions about what happens in the courts after someone passes, so let’s clear some things up when it comes to probate and real estate.
If you own real estate and don’t put it into some sort of entity, when you pass away, it’s absolutely guaranteed to go through probate. By all estimates, probate will take a chunk of its value and last anywhere from 6-18 months. The national average length of probate is 18 months.
This is true for everywhere you own real estate. Thus, every state requires probate. If you own real estate and don’t put it into a proper plan (an LLC, land trust, living trust, or some other entity), you force your heirs to go through the probate process, which requires them to go in front of a judge in every state wherein you own real estate. For instance, if you own real estate in three states, that means three probates. More likely than not, that will then mean three lawyers with three separate fees — all just to transfer property.
And let me tell you, plenty of lawyers will try to tell you, “Probate is simple in my state.” It’s not. It’s not cheap, it’s not quick, and it’s certainly not simple. If it was simple, they wouldn’t charge the huge fees they do.
When dealing with real estate, I have two rules: put it in writing, and avoid going to court. In estate planning, there are two surefire ways to end up in court: doing nothing, and using a will.
The solution is actually simple: use a living trust. You’ll avoid the court process entirely.
Living trusts have three basic components: the grantor, trustee, and beneficiary(ies). The grantor is the person who gives the asset. The trustee is the party who oversees the asset and makes sure it’s used for the benefit of the beneficiary(ies). Thus, the beneficiary(ies) is who receives the benefit of what’s held in the trust.
With a living trust, you can be all three within your lifetime. As the name suggests, living trusts are living documents — they’re revocable until a triggering event (your incapacitation or passing) occurs. At that point, the trust becomes irrevocable, and we go down the line of who will be the next trustee (a person or third party).
Ultimately, the worst thing you can do is own real estate in multiple jurisdictions in your own name. At the minimum, you should have a living trust.
When you’re ready to discuss your estate planning options in more detail, reach out to us to schedule a complimentary consultation, or call 800.706.4741. There are no strings attached — just professional guidance from our team of caring advisors. And the peace of mind that comes with having a plan in place.