Probate is the legal process in which a person’s assets are distributed upon their death, according to their will. The probate process is a series of hearings that are presided over by a judge in order to:
- Determine and prove the validity of the decedent’s will;
- Document all of the decedent’s property;
- Ensure that all estate taxes and debts are paid; and
- Distribute all assets according to the decedent’s will, as well as any applicable state laws.
The probate process differs from state to state, and is largely influenced by the size of the estate that is to be distributed. An example of this would be how some states allow for a more simple probate process if the estate is smaller, and some states allow the entire process to be skipped if the estate meets certain requirements.
However, most states have adopted the Uniform Probate Code (“UPC”). The UPC is intended to streamline the probate process, and make estate and probate administration more simple and less expensive. States that have utilized the UPC have done so in order to standardize estate administration across state lines.
Generally speaking, the estate executor is responsible for initiating the probate process, as well as distributing the estate’s assets to the beneficiaries. However, if the executor fails to initiate the probate process, any party that has an interest in the estate may do so instead. An example of this would be a party who could gain from the will, such as a creditor or beneficiary.
If no executor was named in the will, or if the named executor is unavailable to fill the role, the court will appoint an executor of its own in order to oversee the probate process. This person is referred to as the administrator of the estate. Executors and administrators perform essentially the same tasks, such as:
- Identifying and classifying assets to be distributed;
- Ordering the release or transfer of assets;
- Reporting any conflicts or issues to the court;
- Addressing all estate debts and taxes; and
- Working closely with the probate judge on various matters.
Can Probate Be Avoided?
Many people would prefer to avoid the probate process. Some of the most commonly cited reasons for this include:
- It can be costly;
- It is time-consuming; and
- Probate does not provide for any privacy on the matter, as probate proceedings are matters of public record.
By having their children avoid probate, this will ensure that the majority of inheritance is retained by the decedent’s children, as opposed to losing some of it to pay attorneys’ fees in probate proceedings. Additionally, avoiding probate would give their children and other designated beneficiaries more immediate access to the gift.
While there are several ways to avoid probate, a living trust is one of the best ways to bypass it, which is further discussed below. This is because property or assets that are being held “in trust” technically belong to the trustee and not the property owner. As such, when the property owner dies, there is no need for probate in order to transfer ownership of the property because the trustee already has legal possession of it.
Probate may be avoided through the use of:
- Living Trusts: These are trusts in which the estate’s owner transfers the legal title of an asset to a trustee. When the owner dies, the trustee is bound to distribute that property according to the terms of the trust. Living trusts will be further discussed later on;
- Joint Property Arrangements: Also referred to as joint tenancy, these are estate planning tools in which assets such as cars, homes, or bank accounts are legally co-owned. When one owner dies, the co-owner receives full ownership of the asset without being required to go through the probate process; and
- Life Insurance Policies: Life insurance policies are non-probate assets, which means that life insurance policies which name a beneficiary will payout to that named person when the policyholder dies.
Avoiding probate by utilizing a trust is a much more customized process when compared to the probate process, and has greater flexibility. This is largely due to the fact that executing a trust is much less formal than a will, and it is considerably easy to change the terms of a trust.
Although avoiding probate has many advantages, there are some notable disadvantages. Generally speaking, it initially costs slightly more money to create and fund a trust than it does to create a will. However, creating a trust may save money in the long run by avoiding probate costs, which are generally drawn from the estate, and therefore reduce the amount that beneficiaries will receive.
Additionally, avoiding probate completely requires careful placement of all new assets into the trust. This is because probate may still be required in order to distribute those assets otherwise. Furthermore, taxes can be higher for the first few years after the estate owner’s death, than if a traditional will were utilized.
What Is A Living Trust?
A living trust, which is also known as an “inter vivos” trust, is a trust that is created while the property owner is still alive. The property owner appoints a trustee to oversee the property, or assets that are being held “in trust,” as was previously discussed.
Unlike a will, which transfers property directly from the owner to the beneficiaries upon the owner’s death, a living trust allows a trustee to take over the owner’s property or assets. Essentially, the trustee serves as a “middleman” before giving the property to the assigned beneficiaries. This specific element of a living trust is the key in terms of why they are so beneficial in helping to avoid probate.
To reiterate, a living trust negates the need for probate in order to transfer ownership of the property because the trustee already has legal possession of the property. In other words, the contents of the trust are already in possession with someone else, and as such cannot be probated.
In general, there are two types of living trusts that are instrumental in avoiding probate:
- Basic Living Trust: A basic living trust is the standard version of an inter vivos trust and is what was discussed above. To reiterate, this specific type of trust may assist in avoiding probate proceedings; and
- AB Trust: An AB trust, which is also known as a “living trust with marital life estate,” is a specific type of trust that is created by a married couple. Because its main purpose is to minimize the amount of taxes that are paid on an estate, it can be used to bypass probate and save on estate taxes.
- Rather than leaving property outright to a surviving spouse, each spouse leaves most or all of their property to an AB trust. When one spouse dies, the surviving spouse is allowed to use that property with certain restrictions. However, they do not own it outright. There are also tax savings because the second spouse never retains legal ownership of the property.
Do I Need An Attorney To Avoid Probate And Create A Living Trust?
If you wish to create a living trust in order to avoid probate later on, you should work with an experienced and local probate lawyer.
An attorney will be best suited to help you understand your legal rights and options according to your state’s specific laws and can guide you through the process of creating a living trust. Additionally, they will also be able to represent you in court, as needed, should any legal issues arise.