Simplify! Your Heirs Will Thank You

Recently, I have been working on two estates which are taking more time than any of us expected. In both cases, the decedent set up revocable trusts to avoid probate. However in both cases, the decedent failed to transfer a few small assets to their trusts. Those small assets are taking up more of my time (and the estate’s money) than all the other assets combined.

In a previous entry, I talked about using trusts to avoid probate. Once you establish the trust, you need to change the name on all your bank accounts, investment accounts, real estate, etc. in order to avoid probate for those assets. The name on the assets should be “Jane Smith, Trustee, The Jane Smith Revocable Trust.”

Any assets which are not in the trust will need to be probated (unless they avoid probate in some other way such as naming a beneficiary or having a joint name on the asset). If the decedent’s estate is less than $25,000, the probate can be very simple, involving only a one-page form and no additional follow up. But if the assets exceed $25,000, more extensive probate is required. So you can see that just setting up a trust is not enough, you must transfer ALL your assets to the trust or your estate will require probate anyway.

The issue in both cases involves small value assets, left out of trust. For example – a few shares of stock held in certificate form, a small investment account worth $10,000, and other small accounts. My guess is the decedents never bothered to transfer these assets to trust because they are so small. But the heirs have paid thousand of dollars in legal fees to get access to these assets and transfer them to the names of the heirs. One of clients died with a small Metlife life insurance policy. Some life insurance companies, such as Metlife, Prudential and Manulife, issue stock to their policy owners. Many people are not even aware they own a few shares of stock in these companies. In order to obtain access to the stock, worth as little as $500, we need to file paperwork with the transfer agency which requires a medallion guarantee from a bank. After a few weeks the stock is re-issued in the name of the Estate. Then, if you want the stock transferred to the name of the heirs, you need to go through the whole process all over again. We had to go through this process even for one share of stock, which was in “book entry” form—meaning that the stock was held by the company on their “books” and there was no physical certificate. It’s easy to forget about stock in “book entry.” We also went through a long process to access $10,000 in an investment account that had been untouched for years. The company was very demanding about paperwork and proof that the heirs had legal rights to the account. There were many letters back and forth as the company asked for more paperwork. Ten thousand dollars is not a small amount of money, but in this case the entire estate was over $2 million dollars, so $10,000 was not a large amount of money for the effort it required.

In some cases, my clients (the children of the decedents) pay more in legal fees to access these assets than the assets are worth. Since then I have taken to advising my clients to simplify by liquidating all their “little” assets. If you are not sure exactly what you own, here is what to do—

  • At the beginning of the year, all your tax forms will start coming in. Instead of just tossing them in a file for your tax preparer, look at them carefully. You will receive a 1099 reporting dividends and income paid for all of your assets, even if the asset is just one share of stock. If you get a 1099 from Manulife, Prudential or Metlife, it is probably for stock which is held in book entry form by the company.
  • Try to find a statement, or information online, for every 1099 you receive.
  • If the value of the asset is 10% or less of your total liquid assets consider selling it now, and adding the cash to another investment. Or, at the very least, transfer the asset to your revocable trust.
  • I also strongly advise that you transfer all stock certificates to a company which can hold them for you, such as Fidelity, and can facilitate their transfer or sale.

It is much easier to take these steps during your lifetime, than it will be for your heirs after you pass away.

Margaret Hoag is an attorney with Eckel, Morgan & O’Connor, LLC in Acton, Massachusetts.  She concentrates her practice in the area of elder law, including long-term care planning, guardianship and conservatorship, MassHealth (Medicaid) application, estate planning, and probate administration.