PITFALL 2: Using a Last Will and Testament to transfer property to your partner upon death
Unfortunately, the Last Will and Testament is still the most commonly used document for transferring assets from a deceased person to their chosen beneficiary. I say “unfortunately” because there are some major disadvantages to using a Will, the chief reason being that it subjects your assets to the probate process and all its drawbacks. Probate is the legal, court process of changing title from a deceased person’s name to their heirs or beneficiaries, and it typically involves a lot of inventories, exact accounting, and sometimes confusing legal hoops to jump through.
There are four major drawbacks to probate:
- High costs
- Loss of Privacy
The first major problem with domestic partners subjecting their estates to probate is the cost involved. Depending on your state, the probate fees themselves may be high. These “fees” are the direct costs charged by a court to take your assets through probate. By far, the more common costs associated with probate are the legal fees attorneys charge to handle the paperwork. According to an AARP study, the national range of average costs lies between four and ten percent (4-10%) of the assets going through probate.
For an estate of even $500,000, that would average out to between $20,000 and $50,000 in costs just to get assets to your partner. And it is not at all necessary. As mentioned previously, using a joint revocable living trust with a separate property agreement can eliminate probate costs for all of the assets within the trust. And all of these benefits typically cost well under $5,000 (often under $3,500) for a complete set of life and estate planning documents.
The second problem with probate is the long delays in settling legal matters, and then transferring everything to the surviving partner. Depending on the state the partners reside in, delays are typically six months to a year and a half before the estate is closed. During that time, access to assets in the estate may be curtailed or even forbidden.
For a surviving partner, these delays can cost dearly. What if the surviving partner needed to access bank accounts to pay the mortgage? What if that mortgage could not be refinanced until probate proceedings were completed? What if the property is in the process of being sold, and the untimely death of the partner stopped the sale, needlessly cutting off vital funds for the survivor? Clearly, keeping assets from the bureaucracy and time delays of probate is desirable.
While joint property would certainly avoid probate for those particular accounts or assets, it comes with all of the drawbacks we mentioned in the first pitfall section. In addition, there are still some delays in transferring joint property from both partners to the surviving partner since a death certificate for the deceased partner plus possibly additional paperwork is needed to complete the transfer into the surviving partner’s name. Again, this is not significant in terms of cost and delays, particularly in comparison to probate, but with a revocable living trust the assets would already be titled in the name of the trust, and there would be zero delays in taking control as the surviving trustee.
Probate also opens possibilities of people stepping forward to contest the wishes of the partners. Because same-gender couples are far from universally accepted, there are decreased odds of the surviving partner receiving everything without a murmur of protest from at least someone. The odds of someone being unsatisfied with the partners’ estate planning arrangements moving to actually brining a court action increases exponentially with the size of the estate.
This third detriment to probate, even if unsuccessful, also adds to the delays in settling the estate and giving access to the partner. The estate not settling for a year or more is much more possible if there are court proceedings in a Will contest. Even more unjust, it is entirely possible, depending on the state the partners reside in, that a court may order the estate to pay for the attorney fees of both sides.
Finally, and most importantly for some partners, probate destroys the privacy of the partners. Depending on state law, because probate is a judicial matter, the proceedings are open to the public. In North Carolina, each bank account, account number, date of death balance, and who the account goes to is information available to the public. All property, values, and addresses are there for anyone to see. In addition, using a Last Will and Testament means that the Will itself is open to public inspection, so the world can see exactly what the surviving partner is getting.
While costs and delays are a substantial estate planning concerns for many partners, the complete loss of privacy tends to be the top detriment. In the years that I have been in my estate planning practice, domestic partners who were not convinced that they wanted a revocable living trust when they came to my office were often convinced when hearing that all of their plans would be open to public scrutiny
Using a Last Will and Testament may eventually get most of a deceased partner’s assets to the survivor, but there are severe drawbacks to the probate process. By far, using a revocable living trust is a more effective way for domestic partners to plan their estates.