By Olen M. "Mac" Bailey, Jr.

(This article first appeared in the May 1997 issue of The Active Times, a senior newspaper published monthly in Memphis, Tennessee.)

The Great Debate

John D. Rockefeller, Franklin D. Roosevelt, Warren Burger and Elvis Presley. What did these famous people have in common at their death? Read on - it may be common to you as well.

The Great Debate over which type of estate planning tool is "best" - wills OR "living" trusts - is a flawed debate. The issue should be whether a will or a living trust is "best for you." Each case is different. Each person or couple has different family situations, different assets and different goals. A good estate planner will gather the facts, educate the client about ALL estate planning tools, discuss the client's options and then recommend a plan.

Now back to FDR and Elvis. What did all of these persons have in common? The answer: Estate Shrinkage.

Franklin D. Roosevelt, President of the United States, had an estate valued at approximately $2,000,000 when he died in 1945. Thirty percent (30%), or more than $570,000, went to pay probate costs and taxes.

John D. Rockefeller, Sr., accumulated a $26,000,000 plus estate. His beneficiaries only received 36% - an estate shrinkage of 64% or $17,000,000.

Elvis Presley, native son of Mississippi and Memphis, died leaving an estate of more than $10,000,000. More than 73% or $7 million exited Graceland to pay probate costs and estate taxes.

Lastly, Warren Burger, lawyer and Chief Justice of the U. S. Supreme Court, died in 1995 leaving a $1.8 million estate. His one page will drafted by the Chief Justice himself after his wife died in 1993 cost his heirs $450,000 in federal and Virginia estate taxes. The probate costs are yet to be determined.

What causes estate shrinkage? Two occurrences: Estate Taxes & Probate.

Let's focus on Probate.

What is probate? Probate is a legal process by which title to property is transferred to heirs. Probate has certain advantages and disadvantages. It is the disadvantages of probate that result in estate shrinkage.

Financial Cost

Probate can cost in the range of 2 to 8% of the value of your estate. Where did I get these numbers? Three places: National Averages, Personal Experience & the Shelby County Probate Court Rules. Rule XIII states that if your estate is less than $1,000,000, then a reasonable probate fee for the attorney and the executor is 2 to 4% of the value of the estate, EACH. At only 2% on a $500,000 estate, that's $10,000 to the attorney and $10,000 to the executor. Most attorneys do not charge a fixed percentage but rather charge an hourly rate for probate. Nevertheless, the guideline percentages in the Rules indicate that a $10,000 attorneys fee for probating a half million dollar estate may be reasonable.

Other probate costs include: publication or newspaper costs for notification of creditors; double income tax returns - one for the probate estate and one for the decedent; bond, inventory, appraisals and accountings, if not waived; and court costs or filing fees.

Time Delay - Emotional Costs

Probate can take from 4 months (the minimum in Tennessee) to 16 months (the national average). Most people don't understand the time period required to complete the Probate Process. One of the more stressful parts of my job during the probate process is dealing with a surviving spouse or loved one after the first 3 months or so has elapsed.

Normally, the surviving spouse wants two (2) outcomes:

1. To put all of this behind them so they can survive emotionally. This becomes difficult when over a 4 to 16 month period after the death of their spouse they continuously have to read and sign documents and answer questions over the phone all concerning their spouse who is now no longer with them.

2. To have access to their deceased's spouse's estate so they can survive financially. They may need to pay medical bills, funeral expenses or pay the house mortgage. This becomes difficult when they have to file a pleading in court every time they need funds from the estate (one example of this is the spousal allowance).

Lack of Privacy

Like Chief Justice Burger's will (which is located in the Arlington, VA, courthouse in Deed Book 196, Page 96), probate files are open to the public for everyone to see what you had and to who you gave it. This is not a concern for everyone but a point that needs to be made.

Avoiding Probate

There are different methods of avoiding probate: joint tenancy; payable upon death (POD) accounts; beneficiary designations; lifetime gifting; and revocable or "living" trusts. Each has advantages and disadvantages. Nevertheless, the revocable or "living" trust remains and is the most comprehensive method of avoiding probate costs and time delays.

Competent estate planning is about client education, not misinformation. Yes, living trusts are not for everyone, but neither are wills and probate.