Wisdom in Wealth

Strategies, Stories, and Lessons Learned Over the Course of 25 Years Helping Families Plan Their Financial Lives

End of Life Planning for Probate Estates

By William Beynon & John Walker | June 23, 2022

In our last article, Incapacity, John Walker shared his personal experience of his parents needing to procure legal documents. The truth is, no matter your background or experience, it can feel overwhelming and complicated to explore the next steps. So how can we shift from uncomfortable and instead feel educated and at peace? We thought to pen these articles about simple estate and probate planning. It is critical that we draw a line here and say that all families are unique. This article isn’t intended to replace a series of deep discussions required to forge these plans, or even to be exhaustive in nature.

End of Life Planning for Probate Estates-image

Our goal is to educate you on the very basics and show that the process can be detail rich, but it doesn’t have to be complicated and/or expensive. We also suggest seeking an appropriate party to create the documents needed for your situation. Having the right person or people in your corner is imperative. If you don’t have those people, we can help you find them.

Many owners of wealth have a very sharp understanding of the nature of wealth and its requisite taxation. Dividends, interest income, capital gains, 1040, K1, and the various tax schedules are familiar in many cases. Alternately, the systems that govern passing and incapacity seem much more mysterious. We think that as human beings we naturally shy away from thinking about the end of our stories. Especially if that end may contain us being institutionalized or causing a war in the family amongst heirs. Another factor is that costly professionals may be needed who don’t always speak the same language as we do. So as usual in life, the sum of complexity, expense, and lack of perceived value leads to procrastination. We urge you to look to your favorite matron of the family, and you will likely hear a phrase that sounds similar to Benjamin Franklin’s quote, “An ounce of prevention is worth more than a pound of cure.” Handling these matters while you are lucid is usually far less expensive and intrusive than after a medical event occurs. The absolute value of not attending to your end of life and incapacity leads down three very ugly roads.

  1. Probate- Probate is the judicial oversight of your assets being divided and creditors paid off. This is a very orderly process, but it is slow and a matter of public record. In Florida, the attorney who oversees the process is legally entitled to charge you up to 3% of the probate estate plus expenses. That could be over $30,000 worth of fees per million of your property (Online Sunshine Official, 2022).1
  2. Federal Estate Taxes- In today’s legislation, the federal government will allow us to pass away with $12,060,000 per person before they levy tax on our estates. The current tax inclusive rate is roughly 40% of the federal estate. If you are married and have less than $24,120,000 between you then you are likely exempt from these taxes. This article will not focus on federal estate, but rather probate estates (IRS, 2022).2
  3. Family Drama- In any family, where there is a lack of direction, people tend to become the worst versions of themselves. Petty squabbling over power and inheritances is highly common. We believe that these occurrences can be mitigated through good planning, communication, and organized family gatherings.

So, how do you avoid the above? The first step is deep thinking about what your warmest wishes and deepest motivations are.

  • How do you want your dollars dispersed at death?
  • What are the circumstances that might alter that opinion?
  • What causes and people do you want to have financial impact on?
  • How do you deal with a colorful patchwork quilt of relations, who may feel entitlement at your demise?
  • How do you treat your children fairly, while possibly not equally?

These are incredibly personal questions and there are no universal truths. Once you have pondered the more philosophical topics, you will move on to the more mechanical processes of recording your final instructions.

As stated above, probate is the judicially overseen process of estate dispersion. It requires state filings and generally the support of an attorney. It can often be slow, public, and rife with costs. For many families this is the biggest financial hurdle. Thankfully dealing with probate can be fairly simple and can involve as few as five simple processes. The main goal is to provide your assets a way to pass out of your estate that doesn’t require court oversight.

  1. Beneficiary Review- Check to be sure your IRA, workplace saving plans, life insurance, qualified annuities, or other “qualified” accounts have an appropriate beneficiary designation. In doing this, these assets pass directly to your beneficiaries without the probate process.
  2. Transfer on Death (TOD)/Payable on Death (POD)- Bank accounts, brokerage accounts, and “non-qualified” accounts can have these title changes. After beneficiary assignment, they work the same way as normal beneficiaries above and bypass probate.
  3. Lady Bird/ TOD Deed- Not all states offer these deed types, but with a Florida Lady Bird deed effectively you can retain a life estate while adding another party to your property deed. At your demise, the deeded property would pass to heirs without probate. The Transfer on Death (TOD) deed works in a very similar way to the TOD/POD listed above.
  4. Revocable Trust- Any asset that is placed into a properly executed revocable trust is not subject to probate. A revocable trust is a wonderful tool that can mitigate many estate issues. They can be fairly complex in nature and should always be preceded by a discussion with an appropriate professional. If you have real property in more than one state, the entity ownership offered here can avoid filing a second probate in the other state.
  5. Last Will and Testament- We believe there is a huge misconception about the role of this document. It is our opinion that is the best tool we hope is never needed. Joint Tenants in Common accounts and assets passed by Will alone are nearly always subject to judicial oversight. It is critical to have a Will so that your bases are covered, but a Will alone forces your assets through probate. This document should be seen as a wonderful tool to guide your heirs and family through your wishes and to dispense with personal effects. In the best of cases very little should be left to a Will. In conjunction with certain trusts, a “Pour-Over Will” may push any undocumented assets back through the trust in an effort to avoid probate.

An important side note, all states have intestacy laws. These laws govern folks who do not have the steps above covered. In that case, the courts will often use degrees of blood relation to process estates. There is no consideration given to what intentions or wishes you, as the decedent, may have had. With the exception of certain circumstances, the Will should serve as a catchall to prevent intestacy rules from applying to any of your family assets.

The last and most important part of preparing for a legacy should be family communication. Far too few owners of wealth effectively communicate the state of financial affairs or the mechanisms of wealth transfer. Both giver and receiver of inheritances cope with change from differing vantage points. Parents must face the fact that their children are different and that they need to be treated fairly but perhaps not exactly equally. The rising generation addresses the fact they will lose their parents and will be charged to steward some share of the family wealth. If handled poorly, old family wounds are inevitably torn open and old sibling rivalries can re-emerge. Despite the risks of discord, we think it best to start slowly, and reveal the plans in phases rather than to push a sudden shock onto the family at death. It is our opinion that these conversations need to be well prepared for and highly structured. Engaging a professional to host these family meetings can ease tensions and sometimes prevent the atmosphere from becoming destructive. The goal here is to glue the family together around this transition as opposed to ripping it apart over feelings of perceived inequality. Over the course of a few well-planned family meetings, high emotions can give way to reason and the goals of the current owners of family wealth can be executed with the love and care they should be.

The process by which we accept our inevitable incapacitation and ultimate end is one that requires deep thought and discussion. We all have an internal echo chamber where ideas and feelings reverberate. Having a thinking partner to help clarify your thoughts and organize feelings can be a powerful tool. Setting up the legacy and incapacity toolbox doesn’t have to be arduous. Organization and appropriate pauses for review and critical thinking are the keys to success. If you are unsure or uneasy about the mechanics or the family planning involved in death and incapacity, please let us know and we will happily engage you in a discussion.

¹ Online Sunshine Official Internet Site of the Florida Legislature. (2022, June 20). Statutes & constitution: view statutes : Online sunshine. Retrieved June 20, 2022, from http://www.leg.state.fl.us/STATUTES/index.cfm?App_mode=Display_Statute&URL=0600-0699%2F0617%2F0617ContentsIndex.html&StatuteYear=2021
² I.R.S. (n.d.). Estate and gift tax faqs. Internal Revenue Service. Retrieved June 20, 2022, from https://www.irs.gov/newsroom/estate-and-gift-tax-faq
Image Source: Adobe Stock

CWA Asset Management Group, LLC is an SEC-registered investment adviser, doing business as Capital Wealth Advisors (“CWA”) and as blueharbor wealth advisors.  This material is for informational purposes only, as of the date indicated, is not complete, and is subject to change. Additional information is available upon request. Any opinions expressed herein represent current opinions as of the date of publication only and may change based on market or other conditions.  This material may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual results will not be materially different from those described here.   Certain information herein has been provided by and/or is based on third-party sources and, although believed to be reliable, has not been independently verified, and CWA is not responsible for third-party errors.  No representation is made with respect to the accuracy, completeness or timeliness of information or opinions herein and CWA assumes no obligation to update or revise such information or opinions.
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William Beynon
President & CEO

Co-Author of Wisdom in Wealth.

John Walker
Executive Vice President | Private Wealth Management

Co-Author of Wisdom in Wealth. 

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