The corollary: if you own hassle assets now, do your spouse and estate recipients an enormous favor, and deal with these assets now, while you can. Prevent the legal zoo. We’ll explain how below.
Let’s contemplate your rich Uncle Pennybags, who has received huge royalties over the years as his picture has appeared since 1936 on millions of Monopoly boards, Community Chest and Chance Cards. (You thought it was Warren Buffett?)
Uncle Richie (as you called him) was a sophisticated investor; no Baltic Avenue for him in the real world. Instead, he bought into companies which owned mineral rights in Georgia and oil well interests in Texas. He also bought a couple of shares in a company producing a Broadway musical. And yes, he had a part-interest in an assisted living facility on Marvin Gardens.
So when Pennybags died, his estate owned 1.6% of a Georgia partnership trying to sift kaolin out of dirt, 0.875% of a Texas venture owning a semi-dry oil well, and 3% royalties from whenever their musical was performed, whether in local high schools or foreign countries.
Uncle Richie also owned 4% of the Marvin Gardens Convalescent Home. (He also owned part of one on Kentucky Avenue but it was always in the red.)
After Uncle Richie died, the family said “Let’s cash everything in, and get the money.” But there was no easy way. There was no market for any of the Pennybags assets. And worse, there was no way to write somebody, somewhere, to say “Okay, we’re keeping the assets; just re-title them equally among us.”
Nobody was there who wanted any responsibility or had any incentive to help out. After all, these were old ventures.
So how do such asset hassles get solved? Usually, the executor has a lot of work – detective work, wading through financial statements and tax returns, digging through boxes and envelopes for clues, and then legal work: the hassle.
The detective work is daunting. Just try to find the person who now runs a Georgia mineral mine which was set up in 1932.
And once you have the information, you still have to file for probate. Nobody is going to change the ownership on an asset without a court order. And if Uncle Richie was so cavalier that he died without a will, then you’ll have to have a greater hassle: a court-supervised “Administration” thing.
Could asset hassles like these be avoided? Sure thing—but before the death, before the disability. For example, Uncle Richie should have moved his “hassle assets” into either a Pennybags Limited Liability Company, or into a revocable trust. The hassle would have evaporated.
Here are common “hassle assets” you or your elders might own. (And it’s worth checking.)
1. Stock certificates for publicly-traded stock. Sure, they look impressive. But you can’t just sign them on the back and take the rest of the day off.
You get to meet behemoth companies called “Transfer Agents,” which are hired by bigger behemoth, public companies to deal with their stock certificates and who-owns-what so the company can continue to do what it does best.
2. Any kind of ownership in a privately-held entity. Doesn’t matter if it’s undocumented – like the vacation house you own with another couple – or supposedly documented, like a corporation, a limited partnership, a general partnership, a tenancy-in-common, or anything else.
Where’s the hassle? For openers, the longer you’ve owned it, the worse it’s going to be. There’s no transfer agent. The lawyer and CPA who put the deal together – if there ever was any paperwork – are gone. The “understanding” you had with the other owners isn’t remembered by the others – or if they’re dead, it’s certainly not remembered by their descendants.
3. Mineral rights. Like Uncle Richie, your great-grandfather owned the right to mine oil (or kaolin or diamond or gold, whatever) in some land. He didn’t own the land. He just owned the right to dig around in the land and then keep whatever he found.
4. Undivided assets in out-of-state land. That one-seventh interest in 30 acres in rural Idaho. Or that condo in Florida.
Your home-state executor can’t just sign a deed in another state. No other state is going to automatically accept that signature on the deed – not without a hassle.
So yes, before you or your ancestor say “I’ll do anything to avoid probate,” best check the inventory. Otherwise you could end up with both the hassle and the assets.