What is Probate? How and Why to Avoid Probate

Probate is a court administered process whereby at death, the court oversees the transfer of your probate property from your name to the persons or organizations designated in your will.  If you die without a will, your probate property is transferred according to state law.  Probating a will can be expensive and typically takes from six to twelve months to complete but it can take much longer.  Because of this, lots of people prefer to avoid probate. At death, property is transferred from your name (ownership) in one of three ways: by title; by beneficiary designation; or by probate.  The trick to avoiding probate is to make sure all of your assets are set up as transfers under either joint title or beneficiary designation.  Examples of transfers by title include joint bank accounts and real estate held in joint names.  Examples of transfers by beneficiary include your 401k plan, IRA or life insurance.  The best way to make this happen is to make a list of every asset you own and be sure each asset is set up under either a joint title transfer or beneficiary designation.  This can be very tricky and, in many cases, is ill advised so you should not do this without the assistance and advice of a competent professional.

The key is to make a list of every asset you own and then make sure each asset would transfer by either title or beneficiary designation.  For example, if you owned a piece of real estate in your name, and you wanted it to go to your child at your death and avoid probate on that property, you’d need to add the child to the deed as a joint owner.  I added that you need to be very careful to avoid adverse tax consequences and you should have a professional advisor help you.

A little more complicated strategy is to set up a revocable living trust.  These trusts are extremely popular in high probate costs states such as California and New York.  In the typical living trust, you set up the trust and make yourself the trustee. You then retitle your property in the name of the trust. Once this is completed, you manage your property as you always have, with one or two key exceptions. One of the key ingredients in the living trust is that you will name a successor trustee in the event of your death or incapacity.  Having this successor trustee is similar to the power of attorney also discussed in last week’s column.  Here’s an overview of some of the advantages and disadvantages of this strategy:

Advantages of a Revocable Living Trust

  • Any property that you transfer to your living trust will avoid the probate process altogether. This means you avoid some expenses and lengthy delays as they relate to the property owned by the living trust.
  • Because property placed in a living trust is not subject to probate, your records are not made public. If you prefer to keep your financial matters out of the public eye, a living trust is an excellent tool.
  • At your death there are minimal time delays incurred in transferring assets to heirs. The assets are already in your trust, and the only thing that changes is your trustee. The trustee is someone whom you have selected.
  • Should you become incompetent due to an accident or illness, your living trust can provide for a quick transfer of management of your assets.
  • A living trust is simple to establish. Any attorney versed in estate planning should be able to set up one.
  • Generally, it is more difficult for someone to challenge a trust than to challenge a will.
  • Living trusts have low maintenance costs. A living trust is treated much the same as outright ownership of property for income tax purposes. If you are your own trustee, there are not any additional taxes, tax returns, or other costs associated with your living trust.
  • Without a living trust, if you own property in multiple states, you may face probate in each of those states. Since a living trust avoids probate altogether, you avoid this problem.
  • If your job causes you to move from state to state, your living trust removes the necessity of having to draw a new will every time you change your state of residence.

Disadvantages of a Revocable Living Trust

Two of the most-often cited disadvantages of the living trust are the costs to draft the trust and the time and costs of transferring your property into the trust.

  1. Costs—with a living trust your attorney must draft both the trust document and a will. The reason for the will is that at death it ‘sweeps’ into your trust  any assets that you might have failed to retitle in the name of your trust while you were alive.  The result of drafting two documents often means more fees than just doing a will alone but in the long run it may not be any more expensive, and might even be less expensive since you avoid the expenses associated with probate.
  2. Time and effort—The key to a successful living trust is to actually transfer all of your assets into your trust while you’re alive. It does take time but if you don’t do it now, someone will have to do it at your death.

There are a number of other intricacies that you should consider related to the living trust but if avoiding probate, privacy and management continuity are of concern to you, the living trust is worth a look.

The preceding is a modified excerpt from J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning, which I co-authored.


Financial Strategies for Divorcing Couples

I’m happy to report that my wife and I will soon celebrate our 30th anniversary of marriage. Unfortunately, about one-half of marriages do not stand the test of time. Now you’d think that divorcees would have learned the lessons from a failed marriage and ‘get it right’ the second time around…but this is not the case. According to research, 67% of second marriages and 74% of third marriages fail. The emotional and financial trauma associated with divorce is often substantial. If you or someone you know is facing the prospects of a divorce, here are suggestions that can soften the impact:

Seek mediation. I was working with a couple who decided to end their marriage. In this case both people worked in well-paying jobs and they had minor children so there would be custody issues in addition to property division, child support and perhaps alimony issues. I suggested they consider divorce mediation rather than the traditional ‘you hire your attorney, I’ll hire mine’. There were lots of assets involved so the stakes were high including potential legal expenses. These clients approached their divorce with civility, a sense of fairness and a focus on doing what was in the children’s best interest. The result was a smooth transition and legal fees of under $3,000. Contrast this to a recent couple’s divorce that chose to each hire their own attorney to fight out both the financial and custody issues. This couple, whose wealth was but a fraction of the couple in my first example, spent more than $70,000 in legal fees. This is money that could have been split between the couple rather than the attorneys or used to set up college funds for the children.
Get professional help regarding division of financial assets. Which would you rather receive in a divorce, $100,000 personal investment account or $100,000 retirement account? Well, it depends. Clearly there are very different tax issues involved. A Certified Financial Planner or CPA can help you work through the various tax issues according to each person’s individual goals. In addition, there will be income tax issues that will need to be resolved. You’ll also want to decide how attorney fees will be handled.
Protect your credit. The divorce process can easily take many months and ‘disruption’ is a common byword. This disruption of the normal handling of your finances can result in things falling through the cracks such as bills not getting paid on time. The last thing you want is to be newly divorced and have bad credit. Pull a current credit report from each of Transunion, Experian, and Equifax; resolve any current credit inaccuracies together; and be diligent regarding paying all bills in a timely manner. It’s often much easier to repair credit before rather than after a divorce.
Change beneficiary designations. You’ll want to re-write your will. However, the laws of most states automatically exclude an ex-spouse from receiving assets under your will if you forget to change it after your divorce. This is not the case with life insurance beneficiary designations, designations for retirement plan beneficiaries, co-ownership of bank accounts, etc. We had one case where an ex-spouse was left on a bank account for more than 20 years…and was therefore entitled to the bank account proceeds when the owner died.

9 Secrets to Achieve Financial Freedom Pt VIII

As I conclude this series on the ‘9 Secrets to Achieving Financial Freedom’, let’s begin with a review of what we’ve covered so far. The Secret of Decision states that before you can accomplish any goal, you must ‘decide’ what you truly want. With the Secret of Total Commitment and the Secret of Clarity you commit to do, “Whatever it takes” to succeed and get very clear exactly what success will look like for you. Once you’re clear about what you intend to achieve, use the Secret of Decisive Action to both develop and execute a written game plan. Any goal worth achieving will likely involve many challenges and obstacles so you’ll need to fortify yourself by implementing the Secret of Perfect Attitude. With this secret you discover that while you may have little choice regarding your challenges and obstacles, you get to choose how you react to them. That choice allows you to respond in a positive, constructive and productive way…and will hasten your journey to success. Adopting the attitude of success allows you to incorporate the Secret of Financial Focus. Each day ask yourself, “What can I do today that will move me closer to my goal?” and then take a positive step. Most major goals are accomplished with hundreds of ‘baby steps’. The Secret of Passive Income states that to be truly financially free, you must create a source of cash flow outside of your own paycheck that is at least equal to lifestyle expenses. Think of it as a way of ‘automating’ your success. With the Secret of Leverage, you’re looking for ways to accelerate your success…to reduce the time it would normally take otherwise. In the world of personal finance leverage is available in many forms. Donald Trump and millions of other people use financial leverage to create personal fortunes with modest amounts of money. Business owners use ‘people’ leverage to magnify results. Just look at what Bill Gates has accomplished by assembling a group of highly talented employees. Our government provides tax laws that allow you to leverage returns through tax deductible retirement plans. And the list goes on and on.

This brings us to the final secret, the Secret of Team. Rarely have I met a Self-Made Multimillionaire who got there without a lot of help. In fact, built into most Self-Made Multimillionaires DNA is the intuitive knowledge that they’ll need to develop a Team; seek out mentors; and model others who have gone where they intend to go. You should do likewise. Whatever your goal, think about who you could get to help you achieve it. It might be a professional, a friend, a family member or someone you don’t know personally but will need to meet. You’ll find most people are willing to help you if you’ll just ask.

In my own Ultimate Fitness Quest, I used all of the above ‘secrets’ as I set out to lose 20 pounds of body fat in 40 days and cut my waistline from 37 inches to 34 inches. Each secret proved critical to success as each is interconnected. By day 40, I lost 20 ¼ pounds and cut my waistline to 33 inches. So where do I go from here? I’ll set a new health and fitness goal that builds on my current success. You can as well. Whether your goals are in the area of personal finance or fitness, take the first step today and visit

How to sign up for the Ultimate Fitness Quest!

I’ve had numerous people asking how to sign up to get the resources for the Ultimate Fitness Quest. Just go to and click on the Ultimate Fitness Quest logo and it will take you directly to the sign up page!

Welcome to The Ultimate Fitness Quest

We’re getting ready to launch this program on May30th and the content is going to be great. Hope you will join us with a Fitness Quest of your own!

Beginning May 30th

Stewart's Ultimate Fitness Quest

Beginning May 30th

Hop on the Bus for Free Financial Advice

Last week I discussed the importance of being prepared for the unexpected, specifically for incapacity. Another threat looming large is the dismal economy we currently face where layoffs continue to plague workers across the country. If you have money in the bank and a secure job, consider yourself lucky. Most Americans have little or no savings and are therefore unprepared for just about any hiccup in their financial lives. Well, help is on the way, again. Last year, three organizations joined forces to provide consumers with basic advice on personal finances. The Consumer Education Foundation of The National Association of Personal Financial Advisors (NAPFA), TD Ameritrade Institutional and Kiplinger’s Personal Finance magazine have developed a bus tour across America and are offering you free access to professional financial advisors to answer your most urgent financial questions.

The program is called Your Money Bus Tour and will be coming to the Metro Birmingham area this coming Wednesday. The bus will park at the Hoover Library where Hoover Mayor Tony Petelos will kick off the event at 11:30 a.m. and Director of the Alabama Securities Commission, Joe Borg will offer tips for consumers. The kickoff will be held in the café area of the library.

You’ll are going to have an opportunity to meet one-on-one with a financial advisor from NAPFA. These advisors are volunteering their time and typically charge a minimum of $150 per hour for their consulting services. This is a true community services outreach program, not a sales promotion. Each attendee will receive a free Financial Tool Kit. The services are free and it is an excellent opportunity for you to get a head start on your finances for 2010. While you are welcome to ‘show up’ for the event, it would be best to make an appointment which you can do on line at Appointments begin at 9 a.m. with the last appointment at 6:45 p.m.

Anytime you meet with a professional advisor, whether it is a financial advisor, attorney, accountant or banker, it pays to be prepared. By doing so, you make the most of your time and their time as well. This is especially important at this event since the advisors are expected to handle a large number of appointments throughout the day. Here are a few tips to help you prepare for meeting with one of the volunteer advisors:

Make a list of what you own and what you owe. Known as a financial statement, this provides a quick reference to your advisor (and you), where you stand financially.
Develop a simple budget. Your budget will outline your monthly income and expenses. Your advisor can use this to quickly identify where problems are occurring and offer some easy-to-follow steps you can take to get you back on track.
Documents you’ll need to bring with you. Credit card statements and any loan agreements such as an auto loan will help your advisor understand not only how much you owe but what interest rate you are paying and terms of loan agreements.

If you would like a free form you can use to list your assets and liabilities or complete a budget, go to the Resource Center at, click on ‘Links’, then either Asset/Liability Review or Detailed Budget.