Probate & ABC’s in Probate

BARRY: Number one, you asked about probate.

CHAD: Yeah.

BARRY: So, in your experience, Chad, do you think people know what that is?

CHAD: What were you going to say?

BARRY: Do you think people know what that is in your experience?

CHAD: Unless they went to law school or had a family member pass away where they personally had to go through the probate process, very unlikely.
And so I think a great starting point would be to just share with everyone what probate is, and then we can talk about why it’s important. Why it’s important to get out of it.

BARRY: Same with guardianship, I assume, right? Same idea. Alright, so starting with probate: what is probate and why should you care? If you pass away with assets in your name alone — and that’s very important, assets in your name alone.

CHAD: So not the joint bank account that you own with your wife, correct?

BARRY: Right. Joint accounts with another person, which could be your wife, or other accounts like retirement accounts that have beneficiary designations, or bank accounts that have a TOD or POD — transfer on death, payable on death — designation. They would, most of the time, bypass the court to get to where they need to go. But assets in your name alone are not going to bypass anything. They’ve got to go through what I call the toll booth. I know you’re going to steal this with your clients, and that’s okay. But these assets have to go through the toll booth of probate. It’s a great analogy, because how much of a pain in the ass is it when you don’t have your pass and you’ve got to go through the toll booth and stop and pay a fee, and there’s a line. It’s a pain.

CHAD: So probate is a toll booth.

BARRY: I like the analogy. It’s a good one. I think you’re going to use it. And so what that looks like is as follows. You have to — we call it the ABCs — and it’s a court process. It’s in the circuit court of the county in which the person who passed away lived at the time of death. And you usually always have to have an attorney. So right away, you’re looking at–

CHAD: You’re saying it’s costly, then.

BARRY: Yes, it’s definitely costly. So you’ve got to open up an estate for the person that’s passed away, and we call that process kind of like the ABCs. You’ve gotta first have someone appointed as — in our state, we call it the personal representative. In other states, like New York, where we’re licensed and have an office, it’s called an executor. Most people identify with the word “executor,” so I just use that. That’s the person who, like the name suggests, has to execute on the will if there is one, or execute on the not-will if there’s not one.

CHAD: Now, Barry, if the person passed away, who determines who the executor is?

BARRY: Great question. If there’s no will, or if there’s a will and it appoints somebody who’s disqualified, then the state has a statute for an order of priority. So, like a spouse, family member, that kind of thing. It’s a long– There’s a bunch of people who would be appointed. There’s a bunch of qualifications and disqualifications. But someone has to be appointed, and that person is like the CEO of the estate. They’re appointed with a fiduciary duty, which I can explain in a minute, to move that estate from start to finish. The ABCs come into play because you have to identify assets, beneficiaries, and the creditors of the deceased. And all my subsequent bullet points are going to talk about this in some way. So I’m really glad you brought that up. That was good. That was very, very good of you.

So, assets, beneficiaries, creditors. Assets — jumping into number four — it can be difficult to figure out what people have when they pass away. If you don’t know, if you don’t have a list, if you’re not organized, that executor is going to have to run around.

CHAD: Absolutely. And one of the things I try to do is help individuals ahead of time. We call it the financial junk drawer. The first step of any meeting is: let’s organize your financial junk drawer so you know what you have, and more importantly, so your family or the person you want to know what you have, has somewhere organized–

BARRY: A junk drawer?

CHAD: Yes, a financial junk drawer. 

BARRY: We have something similar that we call a snapshot. And we’ve had to do it after the fact, which is exactly what we’re telling you not to do now. And it’s expensive. It takes a lot of time. You have to subpoena, mail, follow up, hassle people to confirm whether there’s an account or not. And as an executor, you have a duty to be correct. You can’t just half-ass it. So you’ve got to figure out the assets: house, cars, boats, bank, brokerage accounts, annuities, licenses.

CHAD: I can imagine it takes a lot of time if you’re given that duty.

BARRY: Yeah, it takes time. People have jobs. They’re not stopping their lives to work on this full time, and it’s like a full-time job. Assets can be difficult, but they don’t have to be if you’re prepared. When you and I work together on clients, it’s so much easier for us to deal with and help the client. But it isn’t always that way.

B is beneficiaries. If you have a will, you’re choosing your beneficiaries. Unless you screw it up. Do an online will or something like that. Usually have a million holes in them. In cases like Prince, beneficiaries are not so easy. People are claiming to be a beneficiary, claiming a blood relationship, and that has its own legal process. But basically, you either decide or the state decides for you. There’s something called the law of intestate succession, or intestacy, which is a fancy word for saying a judge, a stranger, will decide for you who your beneficiaries are.

CHAD: What happens if it really wasn’t according to the person’s wishes? Obviously, if you’re passed away, you wouldn’t know, but what about family members who feel bypassed? If things aren’t going according to what the deceased individual would have wanted, do they have any say if there was no beneficiary designation or proper planning done?

BARRY: So you’re asking what happens if the family isn’t happy with the decision?

CHAD: The intestate order?

BARRY: Nothing. You’re out of luck. You’re SOL. You either decide, or the state decides for you. This is not a negotiation. This is not a marketplace. This is black and white. It’s black and white. And that’s, I think, on our list. Number ten, which brings up challenging the estate, if you will.

So you’ve got your assets. Hopefully that’s an easy process. Hopefully you’re working with an advisor, an attorney, and a CPA together. By the way, Chad has a lot of alphabet soup after his name — CPA, law degree, financial background. I have a background in tax, computers, business, and law. So we make a good team.

CHAD: You’re a glutton for school.

BARRY: What’s that?

CHAD: We’re gluttons for education.

BARRY: Yep. We like punishment. So beneficiaries can be easy. Nuclear families are easy whether there’s a will or not. Sometimes it’s not so easy. I’ve had cases where we’ve had to inject ourselves as a beneficiary and prove it, and then the case proceeds as normal.

C is creditors, and I find this to be the most common disruption. There’s always creditors. Every person who calls me says they have a simple estate. It’s always simple. It’s never simple. There’s always creditors: FP&L, Comcast, credit cards, mortgages, car loans, student loans. If you’re older, the HCA for Medicaid, insurance, health care, final expenses, funeral bills. Whateve it is, there’s something.

The way this process works, dealing with the ABCs, there’s something called due process. You may have heard of it. It’s kind of important. Due process. Basically it means in this context that all parties — the beneficiaries, the people you excluded, the creditors or proposed creditors — they all have the right to notice of what’s going on. And they all have the right to cause a problem. And much like the presidential debate this week — and I’m going in political, I’m just saying that was a shitshow. Probate provides a convenient venue for what I analogize to a cage fight. It’s a cage fight. You’re inviting problems, and people are happy to cause them. And it has to be resolved with the creditors before beneficiaries ever see a dime.

CHAD: I’d imagine this can drag out over a long period of time.

BARRY: Oh yeah. Easily over a year. Easily. I think the new number eleven can push it well beyond a year, but I’ll make you wait. Not you, Chad, because you have access to the document. Beneficiaries really just have equity in what’s left. Creditors get paid first. Beneficiaries get the remainder. And everything in probate follows an order of operations set by statute. Certain creditors get paid first, then general creditors. If anything is left, beneficiaries get it, either by will or by statute. One last point I hear all the time: a will does not avoid probate. At all. That’s a very common misconception. A will does not avoid probate at all.

So that’s the toll booth of probate. It takes a long time. It’s expensive. It’s time-consuming. It’s unpredictable. And really you only want to do it in very limited situations — mostly if you don’t like your family. So that’s probate.