TRUSTS & ESTATES
Most Americans know the folly of dying without a will. Under the widely different state formulas devised for such cases, a widow can lose one-half of her husband's estate to his relatives. Equally alarming to newly affluent Americans is the high cost of dying with a will. For good reasons, a will must be proved valid (probated) in state courts known variously as probate, surrogate, orphans or chancery. Unfortunately, many such courts' archaic methods can tie up an estate for years, devour 20% or more of its value in legal fees—and force the dead to subsidize politicians in one of U.S. law's darkest scandals.
In many states, probate judges appoint favored lawyers to help executors appraise estates for taxes. Appraisers' fees come out of the estate, and are often based on the size of the estate as the appraisers calculate it. As to how appraisers get their jobs, Detroit Probate Judge Ernest C. Boehm could hardly be franker: "Naturally I select men who have helped me in my campaign."
In New York, "special guardians" are often named to protect the interests of "infants," meaning heirs under 21. The state's surrogate judges appoint guardians without public notice of their names or fees. One guardian recently got $15,000 for ten hours' work on a $700,000 estate. Rumor has it that New York's guardians return about 30% of their fees to party coffers, which suggests the political leverage of Manhattan's two surrogates (annual salaries: $37,000), who last year appointed 428 guardians while handling estates with a gross value of $941 million. Not surprisingly, the big prize in Manhattan's primary last week was a 14-year term on the surrogate bench (see THE NATION), which Fiorello La Guardia once called "the most expensive undertaking establishment in the world."
Invitation to Disaster. Since all will-distributed property is subject to probate, the man who wishes to avoid the process is well advised to reduce the amount of his property that need be willed. One method, which also avoids federal gift taxes, is for a married couple to give away assets of $60,000 in one chunk, plus yearly chunks of $6,000 to each child. Another way is to put assets into life insurance, payable to a named beneficiary other than one's estate; the proceeds escape probate. Other assets can be disposed of by "joint tenancy with right of survivorship" such as joint bank accounts, which pass directly to the surviving tenant. Under that method, though, when the survivor dies, the probate process will take over unless something is done to head it off.
More and more lawyers are now advising clients to set up "revocable inter vivos [living] trusts," which in effect act as a conduit during a man's lifetime for the transfer of his property to his heirs. The creator of such a trust, however, retains full control of it, and as a result he escapes federal gift taxes, though not estate or income taxes on whatever the trust earns. He can change the trust as he pleases until he dies. The trust thus takes the place of a will—and all property that goes into it bypasses probate.