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Financial Planning / Inheritance Strategies
|Subject: Probate-Related Issues||Date: 6/28/2000 7:32 PM|
|Author: GCollier||Number: 1997 of 5768|
My siblings and I were recently involved with Missouri's probate system because an elderly relative died and we were the beneficiaries. It was a typical will in that both executor and beneficiaries were all family members and there were no disputes. Our relatives had both CDs (both IRA and savings) and savings/checking accounts in two different banks in the St Louis region. Our relatives had been customers of both banks for over 25 years but both should be considered financially naive. Following is a summary of some of the horror tales we encountered along with some ideas on how to deal with them. Hope you find them of value in your own planning.
1) The first problem we encountered was that we could not identify all of the individual bank accounts (there were 12-15 of them) even though we had all of the papers in our hands. For me, the message is that your bank MUST provide you a consolidated statement of ALL of your accounts held by that bank. What we encountered with both banks was a rediculous situation. I would not be a customer of such a bank.
2) Our relatives had a series of 6mo/1yr CDs with each bank which dated back to the 1970's. Each CD was assigned a unique account number by the bank. The problem was that there was no traceability between account numbers when the funds were 'rolled' from one CD to the next. The banks automatically 'rolled' the CDs upon maturation and there was no report that had both 'before' and 'after' CD account numbers on it. The traceability problem was even worse because both banks were bought several times over that time period and each had a different records system. It appeared, but I could not prove, that both banks left funds in expired CDs for extended periods of time with no interest being paid. My only cautionary note here is that each investor MUST have an unambiguous record for EACH account which you REVIEW on a periodic basis.
3) Our relatives still had what appeared to be a valid CD certificate dating from the late 1970's. The bank refused to redeem it because they insisted it must have been paid since it was no longer in its database. However, the bank refused to research the original certificate unless we paid them a 'by-the-hour' fee. This problem was finally resolved without our paying when the probate lawyer got involved. Again, my only cautionary note is to make sure that you have an unambiguous record of each account stashed away in your 'lockbox'.
4) One of the banks had an investment company associated with it. When the husband died in 1998, his widow had some cash which she wanted to invest. I suggested T-Bills and we 'purchased' them at the bank - However, I later learned that we were actually dealing with the bank's associated investment company. The investment agent said the T-Bills would take a few days and that he would deliver them to her home in '2-3 days'. Unfortunately, that turned out to be after I had left town. This scam artist assured her that I had been mistaken because T-Bills were no longer available but that he had an alternative which would be better for her. He convinced her to accept (with no additional signatures) a mutual bond fund paying 9% which had a penalty for withdrawals in less than 5 years. This scammer was eventually fired and lost his securities license - but I do not know why. Worse, the investment company was in a total state of denial so far as we were concerned. Within two years, poor bond fund performance, early withdrawal fees, and brokerage fees to redeem the account reduced the account by nearly $10K (out of $60K). My suggestion is that you either personally understand the investment process you are considering or take someone with you who does understand.
5) Because of some prior planning, we were able to sell her house as soon as the probate was filed. However, the Title Insurance Company insisted that they were going to hold the money in escrow until probate was settled (i.e., 6 months or more). Fortunately, our probate lawyer got the probate judge to issue a "Letter of Testamentary" (I will talk about this later) which forced the Title Insurance Company to immediately release the money. My only suggestion is to that you be aware that this scam is likely to happen and make sure you have a way to bypass it.
6) The widow had a stock certificate in her name alone. In order to change the ownership of the stock certificate, it has to be processed by Equiserve Bank in Boston. The required papers to make this change are the stock certificate and the Letter of Testamentary. Equiserve took the certificate and placed a hold on the account after they had stalled for about two months. Their claim was that Letter of Testamentary was sufficiently dated (less than 3 months at that time) and that they would not change ownership of the shares until ??? Our options were to wait or get our probate lawyer involved - which we did. My suggestion would be that you consider a "POD" (will discuss this later) on your stock certificates such that your beneficiaries can claim them based on a death certificate.
WHAT WENT RIGHT:
1) The widow had a WILL. Without a will, the probate judge and probate lawyer will essentially write one for you after you are gone. Whatever you do, make sure you have a current will and it is available so that your estate executor can get it (i.e. not in a bank safety deposit box which may be frozen at death).
2) Probate Lawyer - We were fortunate to get a real 'sharpy' even though he was an 'in-law of a distant relative'. He earned his fee when he produced the Letter of Testamentary. However, your best inheritance strategy is to set up your assets such that most (if not all) avoid probate entirely.
3) Payable On Death (POD) - Bank accounts (savings, checking, CDs) and stock certificates can have attached POD instructions. What this means is that your designated beneficiary can take control of the account by showing a death certificate. This POD works even on IRA accounts but there are tax consequences involved.
4) Beneficiary Deed - Missouri has something called a Beneficiary Deed (other states may have different names) which is notarized and filed with the Recorder of Deeds. With this deed, title to the property automatically passes to individual(s) listed on the Beneficiary Deed upon owner's death. In this manner, you can avoid probate on properties which have a registered title, such as real estate or autos.
5) Letter of Testamentary - This is a document issued by the Probate Judge which states that you as representative of the estate (along with your probate lawyer) can dispose of estate assets AS YOU SEE FIT. This is a powerful tool that we used to force Title Insurance Company, Equiserve, Bond Fund, and bank (for CDs which did not have POD instructions) to "Cough up the Money" now - not six months after probate closes. If you encounter a probate situation, suggest you get such a document.
Hope you find some of these problems/suggestions to be of benefit.
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