by Karla McAlister
If you have a revocable trust as part of your personal estate planning, with an objective of avoiding court-supervised estate administration at your death (probate), this is your annual reminder that if you have not attended to the funding of your revocable trust your estate may have to go through court-supervised probate following your death.
When we meet with our estate planning clients to sign their estate planning documents, we discuss the plan which their documents will carry out at the time of their future death. We discuss trust funding with our clients who have chosen to use a revocable trust, informing them of the mechanics for changing ownership of appropriate assets to trust ownership (as well as alternative methods for succession of ownership) and reminding them we will help if they want our assistance with asset ownership changes, beneficiary designations, ownership succession documents for business interests, etc. Even so, each year we have clients who die and, as their family begins to take care of the necessary legal and tax matters following their death, the family is dismayed to find there is an asset which is not in the trust and for which no alternative arrangements have been made for the transfer of ownership without court-supervised administration.
We can be as involved as you want us to be. Many choose to complete their own transfers and transfer on death arrangements in order to avoid the cost associated with the attorney being involved. That is terrific if you follow through and actually complete the transfers. Sometimes clients transfer what they own currently but forget to implement similar ownership and transfer on death arrangements as the composition of their assets change over time, including the acquisition of new assets by purchase, gift or inheritance. We recommend you examine your financial statement annually and confirm the ownership of each asset. We have found it very effective to work with our clients’ tax accountants to use the process of preparing their annual income tax returns as a convenient time to prepare or update a personal balance sheet and confirm ownership of all assets.
You may recall that probate is the court-supervised administration for the estate of a deceased person. Most of the probates we are currently handling are for people who were not our estate planning clients. Some of them did have a trust yet simply failed to transfer an asset to the trust. A number of them are for people with Oklahoma mineral interests (what many in Oklahoma refer to as “royalty”) that were still titled in the name of the now deceased owner. To be properly transferred in trust, title to minerals must be transferred by mineral deeds. Whether or not minerals are producing now, it is worth the effort to find the original deed or probate decree whereby ownership of the minerals was first acquired and use that information to prepare appropriate legal documents (deed, assignment, etc. depending upon the nature of the interest owned) to transfer title to the trust. The other option is to let your family deal with them after you die, which may entail a time consuming and costly probate. Another common issue is a bank or brokerage account which was never put into the trust. It is perfectly acceptable to leave one account out of the trust, either checking or savings, and at times it may actually be helpful. However, you must make sure appropriate alternative arrangements are made for transfer of ownership at your death (alternative arrangements such as payable on death designations, joint and survivor ownership, etc.). Otherwise the bank may appropriately require your family to initiate a “probate” in the district court in order for the bank to be able to work with a court-appointed legal representative. It is a shame to have to file a probate for a small account with a bank or other financial institution. Another common mistake is overlooking beneficiary designations and/or successor owner arrangements for IRA’s, pensions and profit-sharing plans, annuities, life insurance and other death benefits. If a beneficiary is not named, it is generally assumed such financial interests are payable to the “the estate of” the deceased owner, which requires a probate and may also have unintended adverse tax consequences.
Regarding the issue of banking, it has come to our attention that many banks are extremely uncooperative about receiving checks written as payable to an individual for deposit into the trust account of the payee after the payee’s death. For example, Mom dies and she has everything in her Trust, including all bank accounts. Son is successor trustee and he is closing down Mom’s home. He gets rebates and refund checks from various utilities and other vendors for account deposits and the unearned portion of other payments made by Mom prior to her death. The rebate and refund checks are all made out to Mom. The bank refuses to deposit them or cash them because they are not made out to the Trust of Mom, which is the owner of the account with the bank. The vendors that wrote the checks refuse to reissue to the Trust because the Trust did not make the initial deposit or other payment; Mom was the customer. Sometimes we have been able to convince the vendor to issue their check to the trustee or convince the bank to go ahead and deposit the check made payable to Mom. However, to avoid this unintended problem you might leave one small account in your name to take care of such issues after death. However, if you do, make sure such an account is payable on your death (POD) asdiscussed above and do not close it out until all such “stray” deposits have been received and deposited.
If you own property in another State it is very important to have a post-mortem ownership succession strategy in place, whether the strategy is to transfer title to the out of state property into your trust or implementation of an alternative ownership succession strategy. If you do not integrate out of state property in the current implementation of your estate plan, upon your death it may be necessary to have a probate in another jurisdiction to clear the title to the out of state property for the control and benefit of your intended beneficiaries.
If a probate is needed, it is not the end of the world. After over twenty-five years serving clients out of our Edmond law firm and with a staff of professionals having over one-hundred years of cumulative experience, we are both prepared and pleased to help clients complete whatever post-mortem procedures are necessary, as efficiently as possible. We do give this annual warning to those who have thought ahead and have completed estate planning documents with the goal of avoiding probate. Do not fail to attend to the proper funding of your trust, otherwise your loved ones may be surprised when a probate is required.