Christopher Stoneman Estate Planning Articles

V - Avoiding Probate

 “Sure. I’m avoiding probate the
       sensible way. Spending it all as fast as I can.”

Even Norman  Dacey, the controversial author of the highly touted “How to Avoid Probate,” couldn’t outdo that bumper sticker at least for its brevity and potential effectiveness.  No probate property - no probate. Nothing to avoid, except, perhaps, the foreboding of terminal poverty.

In all seriousness, however, pace Dacey, opinions differ on the desirability - and, indeed, the feasibility - of avoiding probate.  Hard to accomplish with the completeness needed in order to avoid all contact with the probate courts.  These opinions range from the view that the game just isn’t worth the candle, the pluses being outweighed by the minuses, to the sometimes stridently expressed position that in the world of wills, trusts and estates, probate is the equivalent of being sent to the principal’s office or passing through airport security - dreaded inquisitive interference.

But first, what does the term mean?  What is it intended to accomplish as a strategy and what does it not achieve?  Then, as the carnival barker tells the crowd, you pays your money and you takes your choice. And let the chips fall where they may!

Probate (discussed in the preceding article) means having the administration of one’s probate estate be carried out under probate court supervision, a process which will probably prolong  the carrying out of a decedent’s wishes by several months, even in some cases by several years. It applies to decedents who have died with a will giving instructions for the individual or corporation of the decedent’s choice whom the court has appointed by the court to handle the mechanics of wrapping up the testator’s affairs.  Normally an executor, sometimes an administrator c.t.a..*  Probate also applies to those who unwittingly or deliberately go to their rewards without wills, in other words, those who die intestate.

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*   Cum testamento annexo - to quote Black’s Law Dictionary (6th ed., 1951): “With the will annexed. A term applied to administration granted where a testator makes an incomplete will, without naming any executors, or where he names incapable persons, or where the executors so named refuse to act.”

Avoiding probate does not require the taking of a vow of poverty, nor does it necessitate self-impoverishment by repeated acts of intemperate generosity in order to bask above ground in one’s beneficiaries’ gratitude, pleasing though that may be.  It does, however, call for dying with one’s assets held (“titled”) in such forms as to take them out of the category of probate property (again, see previous article).  The methods differ with different categories of property, probably the commonest examples of which are putting one’s home in joint ownership with one’s spouse;  having one’s wealth in the form of contract rights with payable-on-death (P.O.D.) provisions (such as life insurance) which govern who is to receive the contract amounts; or transferring one’s assets (stocks, bonds, cash and so forth) into a revocable living trust (even a trust of which the decedent himself is the trustee!).

It is true that by managing to completely divest oneself of title to probate property one will probably save time and money.  One’s affairs are generally more speedily wound up this way and professional fees and court costs are reduced or eliminated.  Here in Vermont, however, such savings are not as spectacular as some would claim and Mr. Dacey would have had you believe. But it should be noted that routinely avoiding probate does not, repeat not, save taxes* as some mistakenly believe.

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* This is not to deny that certain irrevocable lifetime transfers (for example, the transfer of life insurance to an irrevocable trust) may save estate taxes.  If properly drafted and timely executed, they most assuredly will do so, as well as providing a source for the payment of the estate tax generated by other assets of the taxable estate. 

What, then, does it achieve, and what, if any, give-ups  does it entail?

For some people publicity is anathema and privacy is sacrosanct.  Probate is a public process.  One does not have to be an investigative reporter with a press pass to examine the will of a testate decedent and to peruse the paperwork (other than the tax returns) involved in the administration of his estate.  Probate avoidance will ensure privacy and preserve anonymity - a distinct plus. What the eye doesn’t see, the heart doesn’t grieve over, as the stripper said to the blind man.  Those whom one has deliberately excluded from one’s bounty need not know the extent of one’s generosity to luckier nominees.  Old flames may be remembered without rekindling scandal.

Who is likely to raise questions about the effectiveness or the propriety of a particular probate avoidance plan? How may the decedent’s surviving souse fare, or his creditors?

Surviving spouse.  In Vermont, as in many other states, the surviving spouse is given the right to take a share of the deceased spouse’s probate “estate” regardless of whether the decedent died testate or intestate: typically one third or one half of the estate, depending upon whether the decedent is survived by descendants.  This “elective share” is of the one-size-fits-all variety;  it does not depend upon the length of the couple’s marriage to one another.  But if there is no probate estate - because, for example, the decedent created a trust during his lifetime and transferred all of his assets to that trust before he died, or because, say, the decedent purchased an annuity and directed that  the remainder at his death should go to his alma mater - the elective share rule will have nothing to which to apply.*  Unless, that is, the surviving spouse can establish that the creation of the trust or the purchase of the annuity was done in order to defeat the surviving spouse‘s claim by eliminating or reducing the probate estate.  One third of zero is still zero even in the world of mortuary mathematics.   
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*    It is entirely possible that the Vermont statute may be rewritten to require the addition to the estate of certain items of nonprobate property and thereby increase the group of assets against which the surviving spouse may assert his or her elective share.  This, for example, is the rule by statute in New York.  And in Massachusetts, even in the absence of a statute, the Massachusetts Supreme Court has ruled, in Sullivan v. Burkin, 460 N.E.2d (1984), that as a matter of public policy and regardless of the decedent spouse’s underlying motivation, a revocable trust should be added to the probate estate for this purpose and the survivor’s elective share correspondingly increased. One could search long and hard before finding a more blatant case of judicial legislation!  It has long been the case in Vermont - and remains so at present - that the addition of such a trust to the probate estate would require a showing by the survivor that the trust had been created in order to defraud the survivor. Thayer v. Thayer, 14 Vt. 107 (1842).                                                                    

Decedent’s creditors.     While the obligation of a Vermont decedent’s estate to pay its decedent’s creditors is not extinguished by probate avoidance, the use of probate may find some slight favor with those who are inclined to contest such debts. Thus, the giving of proper notice to a creditor, as part of the probate process, of the debtor’s death may reduce the period within which the creditor must proceed in order to collect the debt.                                             
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Finally, partial probate avoidance may be a useful adjunct to the probate process, a simplifying but not a privatizing factor, especially, for example, if property located in another state is involved or if there is to be a trust which will continue for a significant
period after the decedent’s death.*

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*  In Vermont, such a trust, if testamentary, is subject to ongoing court supervision and the trustee is required to file annual reports until the trust is terminated.  If the trust is no testamentary, the probate court has no supervisory jurisdiction over the trust.
                                                           

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