Making Sure Your Money Goes to the Right Place

Q. When I read your bio, I noticed that you went to William & Mary for Law School. I went there for undergrad and for grad school, and love everything about the place, from the picturesque campus to Lake Matoaka in the Fall. I am a history buff with a PhD, who took full advantage of Colonial Williamsburg buildings and attractions, Jamestown Settlement, Historic Jamestown, and the Yorktown Settlement being so close by. I was so enamored with the place that I stayed an extra 20 years after graduating, and worked as a history professor at the university.

Now, I am retired and have moved to the DC area. I am widowed and my wife and I never had any children. I have lived a pretty simple life, and have saved quite a bit of money through the years. Although I am now in my early 70’s, I have never done estate planning, and think it’s about time I should!

When I do my planning, I know I would like to leave the bulk of my assets to my beloved alma mater, William & Mary. However, I recently read about Robert Morin, a man at the University of New Hampshire (UNH) with a similar desire and devotion to his college. He left $4 million dollars to UNH, and now the college is using $1 million of the amount to build a scoreboard for its stadium. It doesn’t seem like that is what he would have wanted, having read about him, and it seems his Will had to go through a timely and expensive probate process before the university even saw any of the money. Is there a way to avoid a similar fate from happening to my bequest? Since I am single, is a Will all the planning that I need? Thanks for your help!

—

A. Thank you for your inquiry. It is always nice to hear from and to meet fellow William & Mary alumni!

The man you mentioned, Robert Morin, a University of New Hampshire (UNH) graduate, worked for nearly 50 years at his alma mater’s library and saved a fortune of money, due to his frugal lifestyle. According to a recent Boston Globe article, Morin rarely bought clothes, drove a 1992 Plymouth, and spent most of his spare time reading, keeping to himself, and working at the university library.

Morin, who died a little over a year ago, left his alma mater his entire estate of $4 million (a nest egg that few people knew he had), but didn’t leave instructions on exactly where he would like the money to be allocated. After the bequest cleared probate court, the university announced that it will use $1 million of the money for a new video scoreboard at the football stadium.

Critics allege that using Morin’s gift for a scoreboard is inappropriate, given his bookish life, and that the money would be more appropriately used for scholarships, books, computers, research grants, etc. One UNH alumnus blogged: “As a Wildcat, I feel deeply saddened and honestly completely ashamed of my alma mater for this.” Of course, we will never know what Morin would have to say about all this. Anecdotally, however, if it was so important to him to designate exactly where he wanted the funds to go, he could have been more specific in his estate planning documents.

Avoiding the Nightmare of Probate

The part of the situation that certainly could have been avoided was Morin’s estate going through probate. The situation for many people is that when they think of Estate Planning, they immediately think of preparing a Last Will and Testament. While having a Will is slightly better than dying without a Will (i.e., dying intestate), Wills create the same major problem as dying intestate – this being that a Will forces your estate to go through the nightmare of probate, as Morin’s did.

The probate process is a “nightmare” because it includes proving the authenticity of a person’s Will, appointing an executor, identifying and inventorying every penny of a person’s assets, paying debts and taxes, identifying heirs, and eventually, sometimes years later, distributing property according to the Will, or if no Will is available, according to state law. These are five detailed reasons why probate is such a headache:

1. Probate requires frustrating intrusion by the court, lawyers, and the public into a very emotional, private, family time. A judge or commissioner may have to determine who is a legitimate creditor, and may have to rule on distributions to children and other beneficiaries. Your estate will likely have to hire a lawyer to guide the executor through the legal maze.

2. Probate is public: A Will gets filed in the courthouse, for all to read.  And Wills are read. They are read by salesmen, by newspaper reporters, by the morbidly curious, and by scammers and con artists all seeking in one way or another to take advantage of the publicity required by the probate process.

3. Probate is timely: Unless your executor is absolutely certain that there are no debts owed by the estate (a rare occurrence, since almost everyone leaves some small debts behind) and is willing to accept personal responsibility for your debts, the Virginia probate law mandates that your assets not be distributed for one year after you die, to allow creditors time to petition the court for full payment. Any assets distributed before that time come with a heavy cost for your executor — he or she is personally liable for the repayment of all of this amount, even if the beneficiaries to whom distribution is made have already spent the amount distributed. Thus, your executor will likely be very hesitant to distribute before all debts and taxes are paid. The court, not your family, will supervise and authorize the settling of all debts and the payment of inheritances, in its time and with its delays.

4. Probate is costly: On a national average the probate process takes from five to eight percent of your family estate out of the hands of your beneficiaries and gives it to the courts and other outside individuals. Planning with a trust can save the average American family about $30,000 in probate fees, attorney fees, and court costs alone, according to a national study by the AARP. The upfront cost of a trust is only slightly higher than just a will, but the savings in the end always makes the initial expense more than worthwhile.

5.  Potential guardianship and conservatorship proceedings can be avoided:  If you are not competent at any time before your death, the trustee of your living trust can serve as the caretaker of your property. This can avoid the expensive and embarrassing public process of a guardianship and conservatorship proceeding, where your children have to prove that you are not able to manage your own affairs. A living trust combined with a power of attorney provides the most complete protection available.

Using a Revocable Living Trust (RLT)

With a Revocable Living Trust (RLT), you can provide how the real estate and other trust property is to be distributed at your death. As with a Will, you can provide for any number of special situations. However, at your death, the trust assets may be quickly distributed according to the terms of the trust, without the delay, fees, and public exposure of probate.

An RLT does not eliminate the need for a Will. A “pour-over Will” is still necessary to pass on those assets you did not transfer to the trust prior to your death. Please read more about Revocable Living Trusts as a vehicle for estate planning here.

Yes, You Should Still Plan for Yourself if You Are Single

Sometimes, it’s almost more important for single people to do estate planning. One reason is that when a married person suffers a major illness, it’s usually pretty clear who will take on medical and financial responsibility. For unmarried individuals, the water could be a bit murkier.

In addition, when it comes to your finances, if you are unable to pay your bills and take care of your other legal and financial affairs for a period of time, who do you think will do so? The answer to that is: whomever the courts say. And first off, someone will have to go to court and have you declared legally incompetent, even if it is only for a temporary period of time.

Finally, what will become of your things if you should unexpectedly pass away? Who would have legal rights to your belongings, to your home, to your pets?  Without clearly outlining your wishes with an estate planning attorney, you have very little control over the matter.  In your situation, you need to make what’s called a “restricted gift” to our mutual alma mater. A restricted gift is one that can be used only for a specific purpose, in a specific geographic area, or within a specific time frame. For example, a donor can place restrictions that require the gift to be used for a specific program and to not be used for overhead expenses. When an organization accepts a restricted gift, it accepts the donor’s restrictions and must honor those restrictions.

Incapacity Planning Documents that all adults should have in place include an Advance Medical Directive, a Financial Power of Attorney, and a Lifestyle Care Plan. Estate Planning Documents that most people should have include a Revocable Living Trust & Pour-Over Will. These are crucial in ensuring that your wishes are met and that you have control over your future. An experienced estate planning attorney such as myself can easily get you on the path to having these affairs in order. Call us to set up an appointment for a consultation:

Fairfax Estate Planning Attorney: 703-691-1888
Fredericksburg Estate Planning Attorney: 540-479-1435
Rockville Estate Planning Attorney: 301-519-8041
DC Estate Planning Attorney: 202-587-2797