MOUNT VERNON — During this presidential election year, citizens will have countless opportunities to see statistics spun in every possible direction. There is at least one indisputable statistic, however, and it’s a grim one: 100 percent of us will die. When we do, we trigger the estate probate process. And depending on how well we have planned, probate can be a straightforward matter or an expensive headache for our survivors.
Knox County Probate Judge James Ronk addressed several dozen area residents Saturday morning during a seminar on estate planning and the probate process hosted at First-Knox National Bank by its Trust Department and Freedom Years program.
Judge Ronk’s 40-year legal resume includes time as an Air Force Judge Advocate, Ohio Assistant Attorney General, Ohio Administrative Law Judge, private-practice attorney, and currently as Knox County Juvenile and Probate Judge. In the latter role he oversees the settlement of about 300 estates each year. He drew on that experience Saturday and offered practical advice that was heavy on the need for preparedness.
“We have some important decisions to make during our lifetime, and I want to help you be good consumers,” Judge Ronk said. “When you set out to buy a car you do your homework first, and the same should apply when you are looking for help with estate planning.”
A will provides for the distribution of a person’s assets and names an executor to manage that distribution, subject to the authority of the probate court. Many assets are exempt from the probate process. Generally, those assets that are subject to the process are those which were owned solely by the deceased and for which there is no automatic transfer upon their death. If a married couple owns all of their property jointly, probate may not be required.
Judge Ronk advised against including exhaustive lists of personal property and instructions for their disposal in a will. “If you have something that you would never consider parting with, you might want to mention it in your will,” he said. “Otherwise, it’s better to state in your will that you are leaving a separate letter to that effect. Be honest with yourself, and know your kids. Some people simply say that their things should be divided among the children, and any items they can’t agree on should be sold. I always tell people that as a judge I can divide money, but I can’t divide a grandfather clock.”
The judge provided a basic summary of the steps that need to take place when a person dies and their will is filed with the court. “You have to gather up their assets, pay the bills, let the government collect any taxes, and follow their instructions on how to transfer the remaining assets,” he said. “If you don’t have a will, the State of Ohio will decide on the distribution of your assets (to your nearest relatives as defined by the state) for you.”
A will that reflects your current desire for asset distribution when you die is the first essential document of estate planning. Judge Ronk specified three more documents that he strongly encourages everyone to have in place to provide instructions in the event they become incapacitated. Those are a financial power of attorney, which designates who can manage your finances; a living will or advance directive, through which you direct what level of life-prolonging medical treatment you approve; and a durable power of attorney for health care, which designates who can make medical decisions on your behalf.
It’s also important to be sure that your designation of beneficiaries for assets such as life insurance, bank accounts, IRAs, brokerage accounts and the like reflect your current desires. Assets with named beneficiaries are generally not subject to probate.
Judge Ronk said that the probate of most estates in Knox County incurs between $2,000 and $10,000 in legal fees, with the average being roughly $5,000. He has seen much higher amounts for complex estates and those which are contested. “To paraphrase Abraham Lincoln,” he said, “the only things attorneys have to sell are their time and experience. The more planning you do, the less legal work will be needed. And the tidier you leave things, the less they will cost and the quicker they will be settled.
“Bad situations can be avoided if you have your business in order. You want someone you have the utmost trust in when you select an executor or designate your power of attorney, and I advise against appointing co-executors: Every ship needs one captain.”
Typical end-of-life expenses include nursing home costs, medical bills related to a final illness, attorney and executor fees, funeral expenses and any other unpaid bills and liabilities.
“You obviously can’t distribute what’s left until you know how much there is,” the judge said. “Probate generally ought to be completed within 12 months, and in some cases it can be a lot less.”
Judge Ronk and First-Knox Trust Officer Wendi Fowler both cautioned the audience to be wary when considering estate planning options.
“There are people out there who prey on fear of the probate process,” Fowler said. “Each estate has its own unique set of facts, and there is no cookie-cutter approach to follow. I encourage you to turn to people you trust.”
The judge offered similar advice. “These are things you need to give serious thought,” he said. “There are a lot of people who want to sell you something. One example is an annuity. Another is a living trust. They can be good things or you can pay way too much for them, and depending on circumstances you may be better off with just a simple will. Before you buy anything, make sure it meets your needs.
“We all get older, and we need to look out for each other,” he added. “I’ve seen situations where instead of an estate going to the logical people, like the children, it all goes to a relative stranger. There are people who befriend older folks, and pretty soon things are titled in their name. If a relationship doesn’t look right, you need to speak up.”
Contesting a will triggers a jury trial in probate court, but Judge Ronk warned that “it is usually an uphill battle and only a tiny percentage of challenges succeed. The average estate is not very complex,” he said. “There’s usually a house, a couple of cars, maybe a boat, bank accounts and some stocks. There are no big disputes and the assets are all going to the spouse or being evenly divided among the kids.”
Planning tools that reduce the number of assets subject to probate include joint survivorships, where parties specify that all or a portion of their assets will transfer to the other upon their death; and pay-on-death accounts and registrations that work as the name suggests.
Another important element of estate planning is consideration of federal and state estate taxes. In 2012, the federal government allows a $5,000,000 exemption from estate taxes, with a maximum rate of 35 percent on larger estates. Unless Congress acts before the end of the year, however, the maximum rate will increase dramatically to 55 percent and the allowable exemption will be reduced to $1 million in 2013.
At the state level, the Ohio Legislature has repealed the estate tax altogether effective in 2013. In 2012, estates less than $338,333 do not incur tax. Larger estates incur a tax of 6 percent on the amount between $338,333 and $500,000, and 7 percent on amounts in excess of $500,000.
A final financial tool that Judge Ronk and Fowler agreed deserves serious consideration is nursing home insurance. “We can all end up in a nursing home for several years, and that wipes out a lot of money,” the judge said. “If you don’t have any money, there’s Medicaid, and if you have a lot of money it will pay the costs. If you’re in the middle, you ought to give the insurance some thought.”
There was also discussion of one very basic question: Where best to keep your estate documents. Executors should have a copy of your will, and copies are generally kept by an attorney and perhaps in a safety deposit box. A living will is of no use if it isn’t on hand when needed. It’s advisable to give copies to family members, to your physician and to your local hospital, and to carry a paper with you that points the way to the document. Persons to whom you assign powers of attorney should be provided with copies.
Closing that discussion with a touch of levity, Judge Ronk suggested, “To keep it simple, never keep your documents where they will burn up in the same fire you do.”