What is a Will? (Video)

What is a last will and testament?

Joe wrote out a list of what he wanted to go to certain people.  However, that’s all it was, a list of people followed by what they get.  His family later found out that wasn’t enough.

Just writing down your wishes is not enough.  It takes the right legal format and wording to make a proper last will and testament.

A Last Will and Testament is a list of instruction for the distribution of your final estate.  It names the person, the executor, who will be in charge of the distribution.  Its other very important function is to name your choice of guardian for children under the legal age of 18.

The requirements for creating a Will in Arkansas are basic.  You must be over 18, know what you have and know who you want to have it.  If you meet those three requirements, then you can create your Will.  Even people with mild to moderate dementia can still create a Will since the mental requirements are not hard to meet.

A Will lists the people or organizations and charities that you want to receive gifts of your property. If you have children, including adopted children, that you want to leave out, they must be mentioned in the Will.  Otherwise, by Arkansas law, they can make a claim against your final estate.

A Will also lists the powers that your executor will have.  Wills without any powers listed must have almost every action approved by a Judge.  Wills with a comprehensive list of powers need fewer trips to the Judge to get permission to do things.

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What is in a Well Designed Estate Plan? (Video)

What is in a well-designed estate plan?

A well designed estate plan wraps you in a blanket of protection and peace of mind.

A well-designed estate plan not only tells the world how you want your stuff distributed but protects your freedom of choice during your lifetime.  It sets forth rules and put people in charge to protect you and your money during your lifetime and beyond.

The first, and most important piece of a plan, in my opinion, is the durable power of attorney.  This protects you during your lifetime.  It keeps your family out of court seeking permission to make decisions for you and to manage your property.  And, it is much cheaper to setup a power of attorney than to go to court.

In a power of attorney, you name somebody you know and trust, not necessarily a family member, to manage your affairs and make decisions for you if you can’t.  This person will be in charge of managing your money and other property if you can’t.

For healthcare, you set up a healthcare power of attorney.  This is a power of attorney specifically to make healthcare decisions if you can’t. 

To go along with a healthcare power of attorney you should also setup a HIPAA waiver or protected healthcare information release.  This tells the medical professionals who they can talk to about how you are doing and what is wrong with you.  Without this, the doctors and nurses are limited in what they can discuss and who they can discuss it with.

Finally, we get to the parts of a plan that deal with the distribution of your estate.

First, a last will and testament tells who gets what when.  A will requires probate, but can work with some additional planning.

Second, a trust can be created.  A trust avoids probate and provides for management of assets during your lifetime.  You name a successor trustee to take over managing the property in the trust if you can’t during your lifetime.  Afterwards, the final trustee will follow the instructions in the trust to distribute your property and money.

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The True Cost of Probate

What is the true cost of probate?  6% to 10% is thrown around but let me explain why this is often much lower than the true cost.

Hi, I’m Gary DeWitt.  I do estate planning.

The true cost of probate can be MUCH higher than the 6% number that is thrown around.

Let’s look at an estate with a $200,000 house with a $150,000 mortgage.  The house is to be sold.

The attorney fees are based on the GROSS value of the estate.  That is the $200,000.  The allowable fee is $6,050 or 3% of the GROSS value.  The fees to file and advertise add $395.  The required appraisal will be about $600. 

The total cost is up to $7,045.00 which is about 3.5%.  Still not too bad, right?

But the true cost is MUCH higher.

First, when the house sells, the mortgage will be paid off, leaving $50,000.  Don’t forget that the realtors will get their 6% commission on the GROSS sales price.  If it sells for $200,000, the realtors get $12,000.  And the title company will charge another, roughly, 2% for $4,000.

That leaves $34,000 net.

The executor is entitled to $1,170 leaving $32,830.

Take off the attorney fees and costs and it leaves $26,955.00.

If you use the $32,830 as the base, the attorney fees and costs are about 21.5% of the net.

And this assumes that the funeral was paid for some other way.  If not, take off another conservative $7,500 for the funeral.  Now the cost is 27.8% of the net.

And if other debts are owed, those must be paid too before the family gets anything.

And that is the true cost of what probate can cost just in money.

Just imagine what it would cost if the mortgage were higher.  And if there isn’t any equity, the family may pay out of pocket.

I’m Gary and I do estate planning. 

If you want to make sure your family gets as much as possible, setup a time to come see me.

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What is probate when there isn’t a Will? (Video)

What is probate when there isn’t a Will?

Most people would rather walk over hot, smoking coals than to go through a probate.  For most people, probate is a long, anxiety filled process.

Probate without a will is technically just administration of the estate.  It runs about the same as with a Will, except the state of Arkansas has decided who will get what, when, and how.

Without a will or trust, the state has decided for you who gets what, when, and how much.  The state has effectively taken control of the situation and taken control away from you and your family.

There are a set of rules and procedures that must be followed as set forth by the state.

The state’s plan is necessarily generic and may not fit your situation or even be close to what you want.

Here are the basic rules:

1. Your spouse of over a year gets about 1/3rd of everything only in your name.  Real estate is retitled as a “life estate.”  This means your spouse can live there and collect rents but can’t sell the house without permission of your children.  Even if the house is sold, your spouse only gets the value of the “life estate.”  That value is based on mortality tables published by the Social Security administration.
2. Your children split the other 2/3rds
3. All your outstanding bills are paid before distribution.
4. All your final costs are paid distribution.  Those include medical bills and funeral expenses.
5. Any attorney fees are paid before distribution.
6. The personal representative fee gets paid before distribution
7. Distribution will occur approximately 8 to 12 months after the case is opened.  Your family can apply for an allowance to get by.  The allowance isn’t much.
8. Money for minors is held in trust or special bank accounts under court supervision until they are 18.  At 18 they get a check to do with as they please.

Of course, without a will in place, it is more likely that your family will fight over who gets what, especially the sentimental pieces.

This can be avoided by taking the time to plan now.

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What is Probate? (Video)

What is probate?

Probate.  Just the word strikes fear into the hearts of most people.

But just what is probate and why do people want to avoid it?

Technically, probate is the process of validating a Will and admitting it.  That doesn’t sound so bad.  However, it’s the part of the process known as estate administration that is the long, hard part.

Once the Will is validated and admitted, then the estate must be administered.  This administration includes inventory, valuation, sales, paying off creditors, and distributing anything that is left.

The process in Arkansas goes something like this… An interested party applies to the court to appoint a representative to oversee settling the estate.  What is an interested party?  That is somebody receiving under the Will or a creditor.  If there isn’t a Will, then state law determines who an interested party is.  Usually it is the spouse or children.

Once the personal representative is appointed and accepts the appointment the hard part starts.  The property must be inventoried, appraised, sold, distributed, etc.  All money needs to be gathered up and put into an estate account.

All outstanding bills and final expenses must be paid.  All attorney fees get paid off the top.

The probate is advertised in the newspaper, starting a 6 month waiting period for creditors to make claims.

My checklist has about 100 items on it for a typical probate and administration.

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Probate in Northwest Arkansas: How Much Will Probate Cost?

As with many things, probate cost is going to depend on the complexity of the case.  Those factors include:

• The gross value of the estate
• If everybody gets along
• The type of estate planning done before hand

You can expect certain fees:

• Court filing fee ($185 as of March 2021)
• Newspaper advertising fee (Around $210)
• Executor fees (more on this later)
• Attorney fees (more on this later)

Some of these costs are fixed by state law, some will vary.  But, in general, you can expect probate to cost about 5% to 10% of the GROSS estate.  Your gross estate is the value of everything you own without subtracting debts.

Common Probate Costs

The court fees for filing the petition and other documents range from $165 to $185 (as of March 2021).

The cost for running the required advertisement in the newspaper ranges from $170 to $250.

If there is real estate involved which does not pass outside of probate, you will need it appraised by a certified appraiser, not a real estate agent.  The fees for an appraisal run about $600 per property.

Executor Probate Cost and Fees

You can expect the executor to take a fee for doing their work. 

The executor is the person named in a Will or appointed by the court to oversee the Probate process. If you don’t name an executor in you Will, then the Judge will appoint one for you. They are entitled to payment for their work.

The fee schedule is determined by state law as follows:

• 10% of the first $1,000
• 5% of the next $4,000
• 3% of the remaining estate balance

For a $100,000 estate, this comes to $3,150 or 3.15% to the executor.  For a $200,000 estate it is $6,150 or 3.075%.  As you can see, it works out to just about 3% of the total estate.

Attorney Probate Cost and Fees

The attorney is entitled to a fee for their work.  Similar to the executor fees, it is fixed by statue to a percentage or “other contractual arrangement.”

The fee schedule for the attorney fees is as follows:

• 5% of the first $5,000
• 4% of the next $20,000
• 3% of the next $75,000
• 2.75% of the next $300,000
• 2.5% of the next $600,000
• 2% of the balance of the gross estate

For a $100,000 estate, this comes to $3,300.  For a $200,000 estate it is $6,050.  Like the executor fees, the attorney fees for probate hover around 3%.

Total Probate Cost

For an uncontested, straightforward probate you can expect about

• About 3% to the executor
• About 3% to the attorney
• $185 to the courts
• $210 to the newspaper
• $600 to an appraiser

For a typical $250,000 estate this comes to

• $7,650 to the executor (3.06%)
• $7,425 to the attorney (2.97%)
• $185 to the courts
• $210 to the newspaper
• $600 to the appraiser

For a total of $16,070.00.

Unmentioned Probate Costs

The time and aggravation involved in probate is rarely mentioned, but is nonetheless a cost of Probate.

Time

Probate takes a minimum of 8 months and usually closer to a year.  Until towards the end, the money is not available to family.

Aggravation and Stress

The most often mentioned cost of probate is stress.  People just want it to be over with so they can get on with their lives.

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Should I Share Equally? (Video)

Should I share equally?

Parents struggle with leaving one child less than another.  But what you leave should depend on circumstances as much as equality.

Take the case of Jane and Mark.  They have 2 children.  Their first child is a medical doctor and doing quite well for herself.  Their second child has a learning disability and barely made it out of high school.  He went on to trade school and works as an electrician.  He makes a fair living, but nothing like his older sister.  Should mom and dad split everything equally?  Should mom and dad “favor” the younger child and give him more than the leave his sister?  Is it really favoritism to give the child that doesn’t have as much more than the other?  Or is it really equity?

Those are hard choices for parents to make.  Often parents don’t want to make that choice and will split everything equally, even if one child could use the inheritance more than another.

The harder choice is when one child has special needs and is receiving benefits from the government like SSI or Medicaid.  Many parents want to leave those children completely out so their benefits will continue.  However, with the proper planning up front, that child can have the benefits of an inheritance without losing their access to government benefits.

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