Fish, Yodels, and Why You Can’t Always Beat Probate.

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Remember “Give a man a fish and you feed him for a day.  But teach him to fish and you feed him for a lifetime.”  So said Chinese philosopher Lao Tzu, founder of Taoism.

Not quite as wise: “Give a man a fish and you feed him for a day.  Teach a man to yodel and you make him eat alone.”

Groucho Marx once said “Time flies like an arrow; fruit flies like bananas.” Occasionally you hear this, too.

You’d think that if something was said often enough, it would be true.  Or it would become true.

Well here’s one that isn’t always true, no matter who’s saying it and how often they repeat it: “Do a revocable trust and avoid probate.”

Hah. Because often, you can’t.

Let’s take an easy example. IRAs have beneficiaries. You name people as beneficiaries, or trusts, or charities.

But if someone dies, and you want to find out who was named as the IRA beneficiary, you’ll call up the broker or investment house and ask.  And 99 times out of 100, you’ll be told, “I’m sorry, we can’t tell you unless you’re the court-appointed representative of the estate.”

So how do you get a court-appointed representative? You file papers with the probate court to get one, either through probate (if there’s a will) or through an administration (if there isn’t a will).

Another example: the dead person left debts.  A credit card, a mortgage loan, maybe other things. You need to find out just how much is owed.  So you call up and ask . . .

. . . and you’ll inevitably get the same answer: “I’m sorry, we can’t tell you unless you’re the court-appointed representative of the estate. Get us the court order which says you are.” Go back two paragraphs and you’ll find out how that happens.

How about this protection? The executor of an estate can avoid being  besieged by the deceased person’s creditors for months; creditors are effectively frozen from pursuing their claims. During that time, the executor gets to determine who the creditors are, how much each is owed, and how much money the estate has.

The executor can then deal with all creditors fairly, on an equal footing. Everyone gets 100%, or everyone gets 64%, you get the idea. No creditor  gets told “I’m sorry, we paid out a bunch of bills already so there’s nothing left and you get nothing.”

The trustee of a revocable (a/k/a “living”) trust has no comparable authority. What’s in a revocable trust upon someone’s death is totally accessible by a judgment creditor.  A suit pending against the dead individual continues. Debts don’t freeze and wait their turn in line.

And even when a trust looks sufficient, it can turn out to be insufficient,  depending on how rigid the institution chooses to be.

Try this: a U.S. citizen lived out of the country, and died there. (This isn’t an “I’m out of the country being a tourist” situation but a case where someone has kept citizenship but lives outside the U.S.)

He had a revocable trust which became irrevocable when he died.  So the investment house had to move the stocks, etc. into a new account with a new Tax ID number.

The lawyers for the investment place – not the friendly investment advisor – decided that they wouldn’t make this routine trust move without a “Federal Transfer Certificate.”  The investment place insisted: “Get us this Certificate or — guess what? – get us something from a “qualified executor appointed by a U.S. court.”

And by now, you know what that means. Heigh ho, heigh ho, to probate court they go. Because getting a Federal Transfer Certificate is a hassle when no Federal Estate Tax Return has to even be filed.

So as some wise man once said: give a man a trust and he’s probably okay, but give a man a will, too, and he’s going to be a whole lot better off.