Recently, noted retirement specialist Phil Cannella, Founder of First Senior Financial Group and host of The Crash Proof Retirement Show™, spoke with a Philadelphia-area reporter on a number of topics that are vital for retirees. The current passage focuses on probate, and how to avoid becoming a victim of a complicated system.
Reporter: Can you give me a succinct definition of probate?
Phil Cannella: Probate is the legal process of assessing the assets one has accrued during their lifetime and distributing them amongst their charities, heirs and beneficiaries. Every state has its own probate codes.
Reporter: Who goes through probate and who doesn’t?
Phil Cannella: Let’s put it this way, if you have a will, you’re guaranteed to go through probate. Just think about what a will does: it instructs your state as to who gets your assets and how much of them they get when you pass away. But the will doesn’t distribute them—the state does. And that’s the process of probate, wherein your state transfers your assets out of your name and into the names of the people you’ve leave them to.
Reporter: How can people get tripped up in this process?
Phil Cannella: You have to realize, probate comes with its share of technicalities. For example, there’s no probate between spouses. If you’re married and your spouse passes away, there will be no probate and all assets are considered to be jointly owned. However, when the surviving spouse passes on, that’s when the probate process takes place if a written will exists.
Reporter: What if you don’t have a will?
Phil Cannella: Not to worry, most states will basically assign one to you upon your death…but you just may not like whom they designate as your beneficiaries. Creating a will is an uncomplicated and necessary activity that’ll spare your family months of misery. If you don’t have one yet, get one.
Reporter: OK, so what’s the downside of probate?
Phil Cannella: Going through probate can be an expensive proposition; it could be time consuming and it will be publicized. Just the attorney fees alone can add up to tens of thousands of dollars, let alone the nickel and diming of probate fees and cost of filing a notice of publication. This could very well be one of the biggest shams of probate, because most attorneys can charge whatever they deem is reasonable.
Reporter: And who’s to say what’s reasonable, right?
Phil Cannella: Right. Every attorney has a different definition of what’s reasonable. I’ve seen fees ranging anywhere from 3% to 10% of the total estate that the attorneys are putting through probate! If you’re dealing with the $500,000 estate of a loved one as the executor of the estate and have the good fortune to have a good, fair attorney who’s only going to charge you 6% to probate the estate, well, what’s 6% of $500,000—that’s $30,000 that you’ll have to pay for that good and fair attorney’s services! That attorney may very well fare better than the actual heirs! That’s why I say, don’t let your estate become your attorney’s retirement plan! A lot of people become victims in this way.
Reporter: So what’s the way around this?
Phil Cannella: Fortunately, you can avoid some of the largest probate expenses, especially attorney fees, if you know how to circumvent probate. There are several ways to do just that. If you have a will, write a letter to your executor, that is, the person who you appoint to oversee that the transfer of your assets is complete, with instructions on exactly how you want your financial affairs to be settled. Then attach the letter to your will. No formal document is required. Many seniors don’t feel comfortable making their private affairs public as the probate process requires. That alone is a reason to avoid probate. If this describes you, then you may want to consider looking into one of several other alternatives to probate.
Reporter: For example?
Phil Cannella: Let me be clear that I’m not a trust attorney nor do I pretend to be one. What I am is a retirement specialist with 37 years spent digging and uncovering the little-known laws and strategies that you can use to extend your wealth across generations. One of those strategies is a revocable living trust. Now, a revocable living trust is not for everyone, but it can be a valid strategy for avoiding probate. You can use one to avoid probate at your passing or to distribute your assets should you become unable to do so on your own (due to mental incapacitation). To set up a revocable living trust, first you must select a trustee. Then work with a lawyer to draw up the trustee’s responsibilities regarding the trust assets when you pass. It’ll cost you a little bit in fees, but generally nothing even close to probate costs. Then, you must fund the trust with whatever assets you wish.
Reporter: Are there any catches?
Phil Cannella: This is crucial: a revocable living trust must be funded before you die; otherwise, the trust becomes invalid and cannot be funded after your death or incapacitation. Because the trust is revocable, you can amend or revoke it entirely before your passing.