Mention probate and most people automatically think of the court-supervised process of transferring property upon someone’s death. Unfortunately, there’s another type of probate, known as living probate, that needs to be planned for and…avoided!
Let’s take a few minutes to explore the fundamentals.
What is living probate? Living probate is a court proceeding commonly known as a guardianship or conservatorship. It occurs when a person becomes legally unable to manage his or her own affairs.
How does it work? As a general rule, a family member initiates the proceedings by formally petitioning the court, claiming that a parent or loved one is no longer competent and requesting the appointment of a guardian and conservator. The court receives testimony and other evidence, often in a public forum, and makes a determination. Typically, a conservator manages assets and handles financial matters while a guardian handles personal matters.
What are the disadvantages of living probate? Here are several:
- Living probate is public which often means that anyone can attend court and examine personal records. This can be a significant source of embarrassment for the subject of the hearing and the family as a whole.
- Living probate is emotionally painful and difficult. As noted above, a family member usually initiates a guardianship proceeding. That, in and of itself, can be extremely difficult for the initiator; moreover, it can lead to considerable resentment and conflict within the family.
- Living probate is expensive, since it’s a court procedure. It should be noted that annual reports to the court are required, thus often necessitating accountant’s fees and so forth.
- Living probate is often frustrating and time consuming. Although a conservator may have broad discretion in managing the ward’s assets, it may be necessary to secure court approval for certain actions or when dealing with other family members who strongly disagree and threaten litigation.
- Living probate can be very uncertain. As a general rule, the court, after hearing considerable testimony and in its infinite wisdom, generally selects the family member it believes best suited to the task. Unfortunately, that individual may be the LAST person on your list. In other words, you will have zero control in determining who cares for you.
How can one plan to avoid living probate? Very simply, an individual can significantly reduce the odds of living probate by preparing a comprehensive estate plan. It should contain the following documents:
- A funded revocable living trust: This document normally defines what constitutes disability and allows your physician and a trusted family member to make that determination in private…without court intervention. That same document identifies your ‘disability trustee’ who becomes responsible for managing your property. If your property is in trust and managed by your disability trustee, there is no longer any need for a court proceeding.
- Financial power of attorney: This individual is authorized by you to manage property held outside of your living trust (i.e. 401(k) account, IRA, annuities, etc.) or…to transfer property to the trust on your behalf when appropriate.
- Health care power of attorney: Through this document you select and appoint a trusted individual to make medical decisions on your behalf when you are no longer able to do so.
Disability and long-term-care insurances can and should be an important part of your ‘disability plan’. In effect, they augment your planning documents and help ensure a more comfortable environment in the event of your disability.
Remember…estate planning is an opportunity for you to take better control of your life by making important decisions in advance of any disability. Take a few minutes to chat with your estate-planning attorney in order to ensure that your personal disability plan is adequate.