Practical Probate Planning

Probate is a word, like plague, that carries a bad connotation. Stories go around about cases taking years, or families fighting, or fees to the state. Here are some practical planning suggestions that may avoid probate, help ensure probate will not take a long time, might decrease family disputes, and reduce costs.

In Connecticut, probate is not required unless “probatable” assets exceed $40,000.
Probatable assets mean property that does not automatically pass to others, such as joint survivor bank accounts, real estate held in joint survivorship, and life insurance. If the total assets that don’t automatically go to someone are below $40,000 and don’t include real estate then an expedited procedure call an “Affidavit in Lieu of Administration” can be filed to transfer those assets to heirs without opening a probate estate. People with modest assets can plan to avoid probate by having their loved ones named as beneficiaries, or owning property jointly with right of survivorship.

For typical families with assets including real estate, bank accounts, and investments
ranging from tens of thousands to a million or more, planning may also include doing a revocable trust. Property in a trust does not pass through probate. Similar to a beneficiary account, it passes directly to the named beneficiaries. When my mother was in her later years she opened separate CDs, and bank accounts with her three children named as joint owners. This was hugely impractical, as the rate would change and the accounts could never be kept equal in value. A solution in her case was to put those assets into a living trust. She still controlled the trust while she was able, and then a trustee ran the trust when she became incapable. All of the children received an equal share when she passed.

A living trust means the trust is created and assets are put into it while you are living.
There can be as many versions of a living trust as there are people, and they all “avoid” probate. In Connecticut however, a living trust will not avoid the probate fee. That is because the probate fee in Connecticut is not based on property passing through probate. It is based on the inheritance tax return which is required to be filed, no matter how property passes on to your heirs. It does not matter whether property is owned solely by the deceased, jointly with survivorship, with beneficiaries named, or in revocable or irrevocable living trusts. This is a common aggravation to people, but there is one bit of good news. In 2020, there is no Connecticut inheritance tax for people below $5.1 million, so most Connecticut residents will not owe any inheritance tax.

A word to the wise is that the value of the property put on the inheritance tax return
should be accurate because under federal law that becomes the “tax basis” of the property. In plain English, that means the state or federal law treats property as if the heirs bought it at that value. Sometimes people low ball the value, because the probate fee is a percentage of the value. But when the property is sold for more than the low “tax basis,” there is a capital gains income tax which is massively more than the probate fee. Recently a family was informed of this very large capital gains and was able to correct the inheritance tax return so there would not be any capital gains tax.

There are as many probate planning situations as there are families. The variables are endless based on marital status, ages and health of children, size and kind of assets, and family relationships. Practical probate planning can make life easier for your heirs. But it must be done knowing all the pluses and minuses. For example, a revocable living trust will avoid probate, but it will not protect one penny if the person making it, or the spouse, needs to get long term care. For that an irrevocable trust with provisions that satisfy the state and federal laws for home care and nursing home care will work, but a revocable trust will not. That is because “revocable” means it is revocable, and the person making it can take the property back, and quite logically the state says if you can take it back, it still counts as yours. As you contemplate planning for yourself and your heirs, get full and comprehensive legal advice that takes account of the full picture.