Probate is the legal process through which a deceased person’s property and belongings are distributed to other individuals. Depending on the circumstances, the probate process may be managed by the state and can often be a complex process.
For example, if a deceased person leaves a valid will when they die, the property will be probated as stated in the will. However, if the deceased person does not leave behind a valid will, the property will be probated to his or her family through the state’s intestacy scheme. This can sometimes have different results than what the person might have intended if they had created a will document.
Why Should I Avoid Probate?
Many people seek to avoid the probate process for many reasons. For one, the process of probating one’s property can be very costly. Probating the estate must be done through a probate court, and thus requires court fees, attorney fees, executor fees, and other costs that can quickly add up. Therefore, it is usually in one’s interest to avoid the cost and time of probate if possible.
Also, as mentioned, the state’s intestacy scheme is managed according to set rules and principles regarding the way that property is to be distributed. These cannot be changed, and therefore may result in a distribution of the property that is not in line with the deceased person’s intentions. It can also create friction amongst the recipients of the property, who might not agree with the way the state divides the property.
Thus, having a will in place ensures that the deceased person’s estate will be distributed in exactly the way they want. This can help avoid contests or legal disputes over the property in the future.
How Can I Avoid Probate?
A deceased person’s property is probated only if it is not already committed to distribution through another legal mechanism (usually the will document). Thus, one can avoid probate by making other legal arrangements that commit their assets to distribution outside of the probate process.
Other legal mechanisms that can be used to automatically distribute property outside of probate may include:
- Joint-bank accounts;
- Jointly-held real estate;
- Payable on death accounts; and
For example, a home that is held jointly by two spouses may avoid probate if the property is already legally committed to pass to the surviving spouse upon one spouse’s death. Similarly, one very effective way of arranging to have assets distributed, and therefore avoiding probate, is through the legal creation of a trust.
What is a Trust?
A trust is where a person (the “settlor”) gives money to another person (the “trustee”) to hold for, and later distributed to named recipients (the “beneficiaries”).
In other words, a trust involves a gift that someone arranges to have given to another party, sometime in the future. In the meantime, the gift is held and managed by another person until the time or conditions are fulfilled for transferring the gift. Thus, the gift is already committed to someone and cannot be probated.
Trusts can be designed in almost any manner a person chooses. For example, the settlor can determine:
- The amount and type of money or property in the trust;
- Which person(s) the trust property will be distributed to;
- What the trust money or property is to be used for;
- When the trust will begin distribution; and
- At what frequency the trust will be distributed.
They are also free to choose the trustee and the beneficiaries. Thus, trusts are a flexible way for people to creatively manage their assets and belongings in ways that will avoid the probate process.
What is a “Revocable Living Trust”?
Generally speaking, trusts can be classified as either revocable or irrevocable. A revocable trust is one that may be terminated or altered at any time by the creator of the trust. In comparison, an irrevocable trust is final upon its creation, and may not be terminated without the consent of the beneficiaries.
A “living trust” is one that is created by a person while they are still alive. Thus, a “revocable living trust” is one that is created during a person’s lifetime, that can also be modified or terminated at any time by the creator.
The use of a revocable living trust can help a person avoid their property passing through the probate process when they die. However, both a revocable and an irrevocable trust can help avoid probate processes.
Are There Any Tax Differences Between Revocable and Irrevocable Trusts?
There may be some differences between revocable trusts and irrevocable trusts for tax purposes. The main difference is that assets in a revocable trust may be subject to an estate tax, while assets in an irrevocable trust are not.
When a person passes away, an estate tax may apply to the value of their remaining assets as they are transferred to other individuals. In calculating the value of the deceased individual’s estate, assets in irrevocable trusts are exempt. This means that they are not taxable. This is because the deceased individual has already completely given up their ownership rights to these assets.
How Can I Maximize the Value of My Estate for Distribution?
Everyone’s situation is different with regard to their estate. There are a number of factors and legal options that can determine how best to arrange your assets for future distribution. These may include:
- The value of your assets;
- Amounts owed in debt;
- State laws;
- Applicable taxes; and
- Your estate distribution goals.
Above all, saving and preserving your assets will be the best route for maximizing the value of your estate. This would include minimizing any debts and paying them off before you pass away.
Do I Need a Lawyer for Help with a Revocable Living Trust?
Managing your estate and avoiding probate can be complex matters to handle An experienced trust lawyer can best help you evaluate these factors and organize your assets. They can help you maximize the value of your estate for future distribution to your loved ones.