Law Offices of Janet L. Dobrovolny

Below is the chapter on wills and trusts that is taken directly from my first book You've Earned It Don't Lose It. This chapter was written with the help of my own trust lawyer, Janet L. Dobrovolny. - Suze Orman

The Will

A will is a legal document that simply states your intentions and identifies to whom you wish to pass your money and property (your estate) when you die. To make the transfer from your name to your beneficiaries' names, they will have to go to court and get a court order by a judge. The court order gives your beneficiaries the legal authority to transfer ownership of the property and bank accounts from your name (the deceased) to theirs. Nothing officially belongs to them until this procedure is completed. This procedure is known as a probate.

FAQ about Wills

How is a will prepared?
A document is drawn up in accordance with your wishes. It is in a certain format, is signed by you, and is witnessed by two or three people. Now you have a will.

What's the point of a will?
There really isn't much point. You can prepare a will as a backup in order to pass on items such as jewelry and furniture that don't have a legal title and to express your wishes regarding the disposition of your remains and memorial services.

Probating a Will

Unfortunately, to get the court order, your beneficiaries may have to pay court fees; attorney fees; and, in some cases, executor fees. In many states these fees are set by law. For example, let's say you live in California and all you have to your name is a home worth $300,000. You thoughtfully draw up a will to leave this home to your children. Upon your death, however, the will has to be "probated." The fees to probate a $300,000 estate will be at least $14,300 in California and must be paid at the time the court order is entered. It does not matter how much you still owe on the house; if it is worth $300,000, that will be the amount probated. An additional $1,000 or so must be paid up front as court costs. This includes (approximately) $180 in probate filing fees, $200 for a public notice of death, 1% of the appraised value of the estate for a court appointed referee, and $300 in certification and recording fees. If your children do not have this kind of money, they will either have to take out a loan or sell the house just to pay the probate fees.

It doesn't matter which state you live in; your will must be probated. Not all states, however, have statutory fees. In Marcia's case, even though she had to pay estate taxes due to the value of the property, she did not have to pay statutory probate fees because the state of Connecticut does not require them. But she did pay a required fee to her lawyer to do the probate work. If Marcia's mother had lived in New York, she could have owed an extra $39,000 for probate fees on top of the $235,000 she owed in estate tax. Note that the statutory fees for attorneys and executors can be waived, or one can act as one's own attorney.
Regardless of whether you live in a state that requires fees or not, there are other problems that arise when dealing with wills and probate.

Problems With Wills and Probate

1. The Issue of Public Record

Because a will must be probated and therefore has to go through the court system, everything you identify to leave to your beneficiaries in the will becomes a matter of public record. This means that anyone can go to the court records and discover the value of your estate. This may not sound terrible, but there are swindlers just waiting to prey on the vulnerable.
Furthermore, as part of the probate proceedings, you are required by law to place a notice of the death in the newspapers. The issue of privacy usually rears its head when some unfriendly relative or disgruntled business associate happens to see the notice and wants to make a claim to some of your money; all they have to do is to "contest" the will. The estate could easily be tied up for many years to come. Unfortunately, this happens all too often.

2. A Conservatorship

A will does not deal with issues such as the possibility of conservatorship; this needs to be addressed while you are alive. It only instructs the court as to whom you want to get your property, money, and valuables upon your death. Should you develop Alzheimer's disease or become unable to deal with your affairs, a conservatorship may have to be established. It is a most unpleasant and expensive procedure to have to go to court to have someone declared incompetent in order to gain conservatorship over that person's affairs.

3. The Issue of Guardianship

A will cannot legally appoint someone as a guardian for a child. Again, it merely states your wishes. So your son Jonathan, who is thirty five, and his wife, Tracy, just had their first child - your first grandchild. They decide it is time to have a will drawn up indicating that if anything happened to them, you will become guardian of the child. If something were to happen to Jonathan and Tracy, their will would still have to be probated and the court would establish a probate guardianship. The court can decide that it is in the best interest of the child not to appoint you the guardian and select someone else. The court even has the right to control all funds your grandchild inherits until he or she turns eighteen.

4. Income Tax

A point that is always overlooked is that during the probate period, your beneficiaries may be required to file a separate income tax return for the probate estate. If it takes two years to settle your estate, which is not uncommon, your beneficiaries may have to file (and pay) income taxes for the estate during that entire time.

5. Estate Tax

The biggest financial drawback of a simple will is that it does not alleviate the estate tax burden. No one in their right mind would ever consider making the IRS one of the main beneficiaries of their money. But if you do not take the proper planning steps now, that is exactly what you could be doing. It seems that the old adage "Where there is a will there is a way" should perhaps read "Where there is only a will you are going to pay!"

2001: $675,000
Tax rate: 55%

2002: $1 million
Tax rate: 50%

2003: $1 million
Tax rate: 49%

2004: $1.5 million
Tax rate: 48%

2005: $1.5 million
Tax rate: 47%

2006: $2 million
Tax rate: 46%

2007: $2 million
Tax rate: 45%

2008: $2 million
Tax rate: 45%

2009: $3.5 million
Tax rate: 45%

2010: repealed
Tax rate: 0%

2011: President-elect Obama has suggested freezing the estate tax exemption at $3.5 million.