Avoiding Probate with a Revocable Living Trust

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 What is the Probate Process?

Probate is the legal process through which a will is analyzed by the probate court to determine whether it is a valid will, and then the court oversees the project of distributing the deceased person’s property and belongings to other individuals.

For example, if a deceased person leaves a valid will when they die, the property will be probated as stated in the will (that is, the terms of the will shall be followed). However, if the deceased person does not leave behind a valid will, the property will be probated to their family through the state’s intestacy scheme (the state’s rules for who gets what if there is no will.

Typically, the spouse inherits all; if there is no spouse, the assets are divided evenly among the children, and so on). This can sometimes have different results than what the person might have intended if they had created a will.

Why Should I Avoid Probate?

The state probate court manages the probate process, and depending on the circumstances, probate can sometimes be complex. Often people seek to avoid the probate process for various reasons.

For one, probate usually takes at least a few months and sometimes as much as a year, which delays getting the deceased person’s assets into the hands of the legal beneficiaries. It can also be quite expensive – probating the estate must be done through a court and thus requires court fees, attorney fees, executor fees, and other costs that can quickly add up.

Also, as mentioned, if there is no will, the state’s intestacy scheme is managed according to set rules and principles regarding how property will 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 how the state divides the property.

Having a will ensures that the deceased person’s estate will be distributed exactly how they want. This can help avoid future contests or legal disputes over the property.

How Can I Avoid Probate?

A deceased person’s property is probated if not committed to distribution through another legal mechanism. Thus, one can avoid probate by making other legal arrangements that commit their assets to distribution outside the probate process.

Other legal mechanisms that can be used to distribute property outside of probate include:

  • Some wills can avoid probate, depending in part on the size of the estate;
  • Jointly held bank accounts or real estate. For example, a bank account or 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;
  • Payable on death accounts (sometimes referred to as a “poor person’s trust.” In this case, the bank account holder instructs the bank to transfer the funds to another person, contingent upon the account owner’s death. The account owner can access the account while they are still alive); and

Another very effective way of arranging to have assets distributed automatically upon death, 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 distribute to named recipients (the “beneficiaries”). The trustee does not ever own the property; rather, they manage it for the benefit of others. This may include selling some of its property to convert into cash or making investment decisions.

In other words, a trust involves a gift that the settlor arranges to have given to someone else at some time in the future. In the meantime, the trustee holds and manages the gift until the time or conditions are fulfilled for transferring the gift. Thus, the gift is already committed to someone and cannot be subject to probate.

Trusts can be designed in almost any manner a person chooses. For example, the settlor can determine:

  • Who is the trustee
  • The amount and type of money or property in the trust
  • How the property in the trust should be managed
  • Which person(s) the trust property will be distributed to
  • What the trust money or property is to be used for when it is distributed
  • When the trust will begin distribution
  • At what frequency the trust will be paid out

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. Revocable trusts are created during the lifetime of the trust maker. Revocable trusts can be altered, changed, modified, or revoked entirely. Often called “living trusts” revocable trusts are trusts in which the trust maker:

  • Transfers the title of a property to a trust
  • Serves as the initial trustee and thus can add to or remove from the trust at any time
  • Has the ability to remove the property from the trust during their lifetime

Thus, a “revocable living trust” is created during a person’s lifetime, and that can also be modified or terminated at any time by the creator. Even if a gift is promised to a particular beneficiary, it can be taken away anytime.

In comparison, an irrevocable trust is final upon its creation and may not be terminated or altered without the beneficiaries’ consent. Any gift made in the trust is permanent – it cannot be taken away.

Both a revocable and an irrevocable trust can help avoid probate processes.

Are There Any Tax Differences Between Revocable and Irrevocable Trusts?

One of the benefits of an irrevocable trust is its treatment under tax law. The main difference is that assets in a revocable trust may be subject to an estate tax, while assets in an irrevocable trust may 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, so there is no gift being made at the time of death.

If there is/was a tax to be calculated, it would be at the time of setting up the irrevocable trust. If the property is likely to grow over time, such as stocks, it makes more sense to pay the tax early while the dollar value of the investments is lower.

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 living 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 and minimize the costs of such things as probate and taxes. Because the distribution of your estate is controlled by state law, it makes sense to select a local attorney who is practicing near you.


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