North Carolina Estate Planning Lawyer & Attorney : Trust Counsel, PA : Trust Administration : Serving Chapel Hill, Durham, Raleigh, Pittsboro, Orange County, Chatham County

They other day a client came in and said that he had heard that probate in North Carolina was a "breeze."  Wrong!  While probate here is less expensive than in some states, I still counsel my clients to avoid it in most cases.  Here are 10 Reasons to Avoid Probate in North Carolina:

1. Court fees can exceed $6,000.
2. Accountings must be filed reporting every penny coming into and going out of the estate.
3. Documentation of bank accounts and expenditures is required.
4. A formal inventory of assets is required.
5. Attorneys fees generally far exceed fees in similar non-probate estates.
6. All filings are in the public record.
7. Notices to creditors must be published in the local newspaper.
8. Delay due to court rules and busy Clerks' offices.
9. Bond may be required if not waived in the Will.
10. Stress induced by court deadlines and requirements.

My office handles dozens of probate matters every year, so we have first hand experience with all types of estates.  I recommend avoiding probate to save time, money and aggravation.  Generally, a Living Trust is the best way to avoid probate, but there are other methods as well.  An experienced estate planning attorney to help you make the right decision about handling you estate.

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The Problem: Continuing care retirement communities have been growing in popularity with seniors for years.  Such communities usually require a "buy-in" upon admittance and many provide for a refund of a portion of the fee upon death.  The contracts (often called Residence and Care Agreements or the like) generally provide that the refund will be paid to the estate of the resident.  The trouble with this is that the refund triggers probate even if there are no other probate assets.  Since the refunds are often hundreds of thousands of dollars, unnecessary probate fees of $1,000 or more often result.

The Solution:  For those residents with living trusts, this can be avoided by a simple amendment to the Residence and Care Agreement that provides that the refund will be paid to the resident's living trust rather than his or her estate.  The amendment (or addendum, as some facilities call it) must be signed by the resident and the management of the facility.

For those residents without living trusts, the cost of having a trust prepared will generally be at least equaled by the probate cost savings alone, not to mention time and trouble avoided by escaping probate.

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Living Trusts are a common estate planning technique for avoiding probate and facilitating management of assets in the event of incapacity.  If someone has a living trust, it usually makes sense to transfer transfer his or her real property to the trust as part of the trust funding process.  This is particularly important for out-of-state real estate, so that no probate will be required in that jurisdiction.

The transfer is done by way of a new deed, which will need to be prepared by an attorney licensed in the state in which the property is located.  The cost is usually about $200 per deed.

However, here are some things to be aware of when transferring your real estate to your living trust:

1)     Mortgage - Virtually every mortgage has a due-on-sale clause, which means the mortgage company can call the loan due if you transfer your property.  However,  the federal Garn-St. German Act (Title 12 of the US Code 1701-j-3; aka the Federal Depository Regulations Institutions Act of 1982), provides that there is no due-on-sale violation when a property is placed into a legitimate inter-vivos trust by a borrower who is a natural person, so long as the borrower is, and remains, a beneficiary of the trust; and the trust is revocable and does not confer occupancy rights to another.   This covers most living trusts.  Of course, you are still liable for the mortgage after the property is transferred to the trust.

2)     Title Insurance - When you buy real estate, you generally obtain title insurance to cover you should there later be a question about your legal ownership of the property.  As part of the process of transferring your real estate to your trust, you should contact the title insurance company to ensure that your coverage will continue under the trust.  Make sure you have it in writing.

3)     Homeowner/Hazard Insurance - Likewise, contact your  insurance company or agent to make sure your property will still be insured.  Again, if it the wording is not in the policy itself, get it in writing.

4)     Rental Property - If you have rental property, you should not put it directly in the trust.  I always recommend owning rental real estate in a Limited Liability Company to protect your other assets should your tenant sue you.  Your living trust can then own the LLC.

5)     Married Couples - When married couples own property together in NC, it is generally Tenancy by the Entirety, which means no interest in the property can be sold without both spouses agreeing, the property is protected from creditors of either spouse.  This is an important benefit, which is lost if the property is placed in trust.  An estate planning attorney can counsel you as the best way to handle it based on your particular set of circumstances.

6)     Time-Shares - Time-Shares are generally considered real property and thus will trigger probate in the jurisdiction in which they are located.  Thus, it's a good idea to put them in a living trust also.

7)     Foreign Property - Countries with legal systems based on English law, such as Canada, Australia, New Zealand, Bahamas, Bermuda,, British Virgin Islands, Cayman Islands, South Africa, etc., generally recognize trusts, so you may be able to change ownership to either your U.S. trust or a trust prepared pursuant to local law.  Civil law countries (most other countries in the world) may not recognize trusts.

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Today I came across a question and answer column on the Raleigh News and Observer website called "Ask Holly."  The answers are written by a Holly Nicholson, a Raleigh Certified Financial Planner who also has a law degree.  The person posing the question about avoiding probate and finding a good lawyer erroneously referred to revocable trusts as "reversible" trusts.  Ms. Nicholson counseled her to begin the attorney selection process by asking the lawyer about reversible trusts, and then consider using any lawyer who nicely explains that the term is actually "revocable" trusts.

I must respectfully disagree with Ms. Nicholson's recommendation.  I believe that it is best to educate oneself about estate planning terms and techniques before attempting to choose a qualifed lawyer.  Purposely acting ignorant serves no useful purpose, is deceptive, and is not a good way to start off what should be a relationship of mutual trust.  Any attorney worth hiring will be polite and patient regardless of how much or how little a prospective client knows about estate planning.

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This article on the website of the National Consumer Law Center provides a glossary of living trust related terms, description of common scams, educational resources, and more.

Living trusts can be great estate planning tools for some, but only if they are sophisticated, personalized documents prepared by a qualified estate planning attorney.  I use them often in my practice, but it's not uncommon for me to recommend against them for certain clients for whom living trusts are not a good fit.

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The February 9, 2007 issue of USA Today contained an article on Living Trusts.  I found the article to provide a good overview of living trusts and their advantages and disadvantages.  However, a few things deserve comment:

• The article contains a statement from Mary Randolph, author of The Executor's Guide, that a lawyer will need about 10 hours to draft a living trust, so that at $150 an hour, the cost will be $1,500 for the trust and accompanying will. 

 Many estate planning attorneys charge a flat fee for preparing an estate plan, and the author neglected to mention the other documents that should be included in a complete estate plan - Durble General Power of Attorney, Health Care Power of Attorney, Living Will, and HIPAA Authorization.  In addition, most qualified estate planning attorneys probably charge significantly more than $150 an hour.  While all of my estate plans are done on a flat fee basis, my own hourly rate is $295.

•  The article quotes North Carolina's attorney general, Roy Cooper - "We've received numerous complaints about the pushy sales tactics of scam artists selling living trusts.  They offer a free seminar or a free lunch, and then scare them about high probate costs and the frustration of settling an estate."

What the article fails to say is that very rarely are these "scam artists" attorneys.  Usually they are fly-by-night companies that sell generic fill-in-the blank forms, or annuity salespeople.  See my post Living Trust Scammers Booted out of NC.

•  While the author does encourage people who think they need a living trust to go see a trustworthy lawyer, he also says that those who have modest estates and think probate costs will not be onerous probably don't need a living trust.  He then goes on to advise people to consider "transfer on death" (TOD) accounts. 

My view is that no one should decide for themselves whether a will or living trust is most appropriate, and should not use TOD accounts without being fully informed about their advantages and disadvantages.  A qualified estate planning attorney should be consulted in both cases.

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Good news in this recent article in the News and Observer:

Andrea Weigl, Staff Writer :
A Wake Superior Court judge has ordered two California companies to stop selling estate planning products to North Carolina consumers while a lawsuit that accuses the companies of bilking seniors out of hundreds of thousands of dollars proceeds.
Earlier this month, Judge Michael R. Morgan ordered American Family Prepaid Legal Corp. and Heritage Marketing and Insurance Services to stop selling or offering their products in North Carolina. In May, North Carolina Attorney General Roy Cooper sued the two companies, alleging that they worked together to defraud elderly consumers.

American Family Prepaid Legal would solicit customers to buy legal services plans to create living trusts to avoid paying probate costs, the lawsuit says. The company billed its living trust, which cost $1,995, as a bargain when compared with probate costs, the lawsuit says. But for someone to pay almost $2,000 in probate costs, his estate would have to be worth more than $500,000, the lawsuit says. Once the consumer signed up for the living trust, a Heritage sales agent visited the home, ostensibly to have the consumer sign paperwork but really to try to sell deferred annuities.

"These companies targeted seniors, using tricky sales practices to pressure them into spending their savings on living trusts and annuities they may not need," Cooper said Wednesday in a statement.

Consumers who think they or their loved ones have been involved in this or a similar scheme are encouraged to call the N.C. Attorney General's Consumer Protection Division at (877) 566-7226.

Some North Carolina attorneys are also guilty of overstating the value of living trusts, implying that probate is much more costly than it actually is, and that estate taxes savings can be achieved only by the use of living trusts (as opposed to wills).  Of course, some attorneys go to the other extreme and don't believe it using living trusts in any  situation. 

I view myself as "neutral," only recommending living trusts when I think there will truly be a cost savings or other benefit.  I have had many new clients come into the office requesting living trusts based on advice of friends or articles they had read, when a will is a simpler, cheaper method of transferring their property.

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