Little Known Way to Avoid Time and Costs Associated with Probate
With the current exemption on federal inheritance taxes at more than $13 million, there are very few people in the Mississippi Delta with enough wealth that they need to make provisions to help their heirs avoid inheritance taxes. But people of both modest and considerable means might benefit from hiring an attorney to draw up documents to provide a Transfer-on-Death (TOD) deed for properties that allow heirs avoid the time and costs of probating an estate, says Ted Connell, a partner with the Merkle & Cocke, P.A., law firm in Clarksdale.
“The TOD deed allows someone to transfer ownership of their home, lake house or farm to their heirs with the big advantage of avoiding probate and the legal fees associated with that,” says Connell. “The TOD deed usually only costs a couple hundred dollars compared to possibly paying several thousand in fees to get it done through the court system after death. People generally have payable-on-death clauses on their banking accounts and retirement savings accounts like an IRA so that, on death, the money goes to the beneficiaries. When combined with TOD deeds for property, this can often allow people to avoid probate entirely.”
Connell has seen cases where payable-on-death clauses are on the banking and retirement accounts, but not on property. Then you have to open an estate.
“Many people don’t realize there is a TOD deed and that, with a little estate planning, you can totally avoid probate for not a lot of money,” says Connell. “It was not well publicized when the legislature made that change in 2020. Very few people know how important it is. When someone dies without a TOD deed and the heirs want to sell the real property shortly after death, it is just about impossible to avoid probate as creditors must be notified.”
Connell says most people place a high priority on seeing their wealth passed down. But many Deltans have a real affection for their land and sometimes want to restrict heirs from selling it.
While land can be tied up for a long time with trusts, Connell said that might not be the best plan.
“Despite the farming economy being depressed right now, land prices are really good,” says Connell. “Land funds and people from elsewhere in the country want to buy land in the Mississippi Delta. When people ask what they can do to make sure their kids and grandkids don’t sell the land, that is ruling from the grave. The negative about that is circumstances can change. My job is to make them think about what all could happen and what the options are.”
Merkle & Cocke handles a lot of will contests and family disputes. Things can get complicated especially when you get down to second and third generations where first and second cousins have small, undivided interests and people have different ideas about how the property should be controlled. Disputes are common.
“Disputes about inheritance regarding family farms or family businesses can be tricky. A lot of issues are due to the current or previous owners who created the wills not considering all the options and what can happen,” says Connell. “You can see how that happens. A mother and father build a productive farm, and have three children who have three children each who may live all over the country trying to decide what is going to happen with a 1,000-acre farm. That is another reason for careful planning.”
The other “low-hanging fruit” for people reaching the end of their health is making sure to have someone designated to have healthcare power of attorney—allowing that person to make healthcare decisions if someone is incapacitated. And either the same or another person can be designated to have the business power of attorney.
“The reason the legislature allows for two different powers of attorney is that some people are better at business and others are better at healthcare,” says Connell. “If someone doesn’t have those powers of attorney, and becomes mentally unable to make decisions for themselves, then it gets very complicated, convoluted and expensive. You have to go to court and get guardianships or conservatorships. That is expensive and stressful.”
He also recommends an advanced healthcare directive that makes someone’s wishes known regarding decisions regarding end-of-life healthcare.
“If you have a will, business power of attorney, an advanced healthcare directive and TOD deeds, unless it is a complicated estate, then you can avoid probate,” says Connell. “If those four documents are prepared correctly, on death you don’t have to go to court. There is no probate and no legal fees. I have done my job if I don’t have to probate the will I drew. Everything passed outside of the estate and there is no reason to probate the will and open an estate. It cuts attorney fees. About ninety percent of our population should be able to avoid probate.
“We have three chancellors in our district who are very efficient with probate. But from start to finish, it takes an average of six months. Our probate system is not the nightmare people might think, but it is avoidable. Why go through a six-months wait and spend thousands in legal fees if you can avoid it by drawing up documents before you die that cost several hundred dollars?”
TOD deeds must be recorded at the courthouse. They are revocable meaning they can be changed. Healthcare and business power of attorney also need to be drawn up by an attorney. They don’t have to be filed at the courthouse but some attorneys do that so they are on record and all are given notice. Those documents should be provided to healthcare providers and to the individuals named to have power of attorney.
Some people will go ahead and transfer assets out of their name so they qualify for Medicaid for nursing home care if it is needed. But Medicaid has a five-year “look back” provision and Connell’s experience is that Medicaid will enforce that.
“They are pretty serious about that,” says Connell said. “Also, someone’s net worth has to be really, really low to escape their assets from being used to pay for the costs of nursing homes or assisted living. So, when looking to do a spend down, you have to be very careful about the lookback provision.”