More on my series on stuff never mentioned in political campaigns but that are insidiously destroying people's hard work and family legacy (nothing exiting in the energy markets at the moment):
While probate does not evoke the passions of divorce with all of the political angst associated with the latter, a little preparation goes a LONG way. Only 50% of marriages end in divorce... 100% of lives will end in death.
I am NOT a lawyer, and this is not legal advice. If you are your average Middle Class Millionaire ("MCM") you probably don't need a great deal of expensive and intimidating estate planning. You need to educate yourself on the process, you need a Revocable Trust, sometimes call a "Living Trust", (you can get the forms at many Legal Forms web sites for about $20) and then you need to move your assets INTO the trust (just go to your bank or broker, they know what to do and its free). Upon your demise, your assets will go to your beneficiaries WITHOUT going through the very expensive and time consuming Probate process.
The statutory probate fees can be VERY excessive (as a percentage of your estate) if you employ leverage (debt). You see, the statutory percentage is of the GROSS estate, not the net. For example, let' say you have $3 million assets and $2 million of debt. The probate fee might be 3% to 7 % of the the $3 million gross, not $1 million net. So let's go with the 7%. Probate fees of $210,000 for net assets distributable to your heirs of $1 million is a 21% death tax. Is that what you worked so hard for? Don't let this happen.
If you are over 60 years old, I would certainly recommend that SOME of your assets be held in some sort of FIXED (not variable) annuity. (BTW, I am not a paid shill for the insurance industry a la Ben Stein and his association with the Variable Industry. I don't even have a valid insurance license at the moment as I have let it lapse.) Wall Street spends a great deal of time and money trying to disparage these insurance products in the press. I want to share with you my own experience. I have put millions of client's $$ in these over the years, and I have NEVER heard one of them say that they wish that the annuity check they receive every month like clock work would stop coming and they would have been better off in the stock market. EVER. Especially as they get older. The last thing you need when you are getting on in years is the opportunity to screw up badly. Opening the envelope for the monthly check is not a decision that ends in tears. When you are 60, you are healthy and thinking clearly - this is not always the case 20 years hence, but there will always be some sc*m bag willing sell to an 80 year old person something they really don't need.
The other cool thing about annuities is that they bypass the probate process entirely (provided that it is not a "Life Only" annuity) and upon your death the insurance company will distribute directly to your stated beneficiaries.
If you have a complicated estate, by all means seek out an attorney. I am fortunate in that I have a buddy of mine that I barter services with. I handle his financial stuff and he helps me with my legal stuff. But for your average MCM, I think a visit to Barnes & Noble or the local public library and a couple hours of reading and researching on the Web should be sufficient for you to feel comfortable going to a site like Legal Zoom and buying the Living Trust form and doing it yourself. I actually bought one of these and brought it to my attorney friend who said "nothing wrong with this", and we doctored it from there.
These are REAL issues facing regular folks that most just don't think about and you are never going to hear about in a political campaign. The entrenched special interests have too much at stake for these things to see the light of day, and the folks that usually raise the alarm on government abuse issues just aren't that interested in divorce and probate reform, but these are the issues most likely to take a bite out of your behind. So you are on your own.
Greg
6 comments:
Will be very interesting to watch the 1980-90s (S&P 500 index/small companies/medium companies/REITs/junk bonds) morph into the 2010s (anything but the S&P 500 index/commodities/metals/energy/BRICs/dividend-paying stocks). Grampa put us all into the latter (mostly) in the 1970s. Either he was a seer, or just incredibly lucky. :) As far as taxes go, you can run, but you can't hide. If you want the top 5 Federal programs funded (and we know everyone does, starting with Social Security), you have to pay for them. The 30-year low-tax Reaganesque bamboozle is over.
Bur,
I don't want those five programs, they stink. Perhaps your real interest here is that we continue to pay your salary. As far as the 21% that Greg was talking about, that was just the FEES from probate, if you let your estate go there. This is not inheritance tax. It's just the state's part of what the local lawyers and county courts screw your heirs out of.
Also, if you can, get a reliable family member to be executor. An attorney WILL NOT watch out for fraudulent claims by doctors, hospitals etc. against the estate. He will write checks. There are more leaches than just the ones in the legal system that will cut out their own chunk of cash if you let them.
Being just barely an MCM, I'd suggest a lawyer in addition to the required reading. My mother in law, (89 years old and managing all her own finances) got some forms off of the web. We had them reviewed, and discovered that her estate WOULD have gone to probate because of niggly little problems with the documents. Good legal help is more than worth it. This is a subject where it is easy to be penny wise and pound foolish.
Regards,
Coal Guy
My salary is micropennies compared to the big 5 Federal programs that are 80% of the budget (social security, medicare, medicaid, interest on the debt and defense) which I have mentioned a dozen times here. :) You may think those programs stink, but you benefit from every single one of them, whether you are poor and/or sick, whether you use your social sec. benefits for things like rent, whether you have any kind of Federal investment, and whether you like having a good night's sleep knowing some tyrant hasn't invaded the country. Every single American benefits from Federal programs, even if they are too proud to admit it. :) And they will never be cut for just that reason.
I suggest everyone avoid taxes as much as possible (I try to), but I still pay Federal tax ($11,000 on $94,000+ income usually), and I applaud Jeffers for helping people smart enough to read his blog to save/make some money.
State budgets are 70% education and social programs, which Americans also hugely benefit from.
I guess Jeffers' post would have also benefitted from knowing who exactly is on the other side from us during the probate thing? The IRS? The state's attorney? Creditors? There are lots of ways to hide money. Who are we up against? Who is trying to take our dough on behalf of the government bodies?
Bur:
When is said "21% tax", I was speaking in a term of art. Not all "taxes" are imposed by the government.
In this case it is the local legal and judiciary that will happily empty your pockets for you.
So the judges and attorneys in the court can crawl thru your assets (assuming they have days to crawl) and collect the checks you write? Makes no sense. Who is doing the "prosecuting?" Federal? State? The city of Chicago? Who is collecting the money? Local gangsters? And how do they get to know just how much you have? Are you forced to find every ducket the dead person ever had? Every investment? Every piece of land? Who does all the footwork to work against you and who collects the taxes, fees, whatever?
Bur,
If your estate is in probate, the court reviews each and every disbursement, and collects court costs for the privilege. The fees are unjustifiably large, and can eat through a big chunk of your estate. This has nothing to do with estate taxes. Avoid it.
Regards,
Coal Guy
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