The term “probate” refers to a legal process governing the distribution of a person’s assets upon their death. Although probate laws often vary from state to state, the probate process typically involves determining the validity of a will, ensuring that any remaining taxes and debts are paid, and distributing assets in accordance with a will or state laws.
- Is it Possible for My Children to Avoid Probate?
- What is a Living Trust?
- How Can an AB Trust Save on Estate Taxes?
- How Do I Create a Basic Living Trust?
- Where Do I Name the Inheriting Parties?
- How is the Trust Property Managed Once I Pass Away?
- Do I Need a Lawyer for Help with Creating a Living Trust and Probate Issues?
Generally speaking, many people would prefer to avoid the probate process. Some commonly cited reasons for this include the fact that it can be costly, time-consuming, and does not provide for any privacy on the matter (i.e., probate proceedings are matters of public record).
Thus, it is not surprising that many people would also prefer to have their children avoid probate as well. This will ensure that the majority of inheritance is retained by the children, as opposed to having to lose some of it to pay attorneys’ fees in probate proceedings.
Additionally, since the probate process can take a long time, avoiding it would give their children and other designated beneficiaries more immediate access to the gift.
Although there are several ways to avoid probate, a living trust offers one of the best options to bypass it. This is because property or assets being held “in trust” technically belong to the trustee, not the property owner.
Therefore, when the property owner dies, there is no need for probate in order to transfer ownership of the property since the trustee already has legal possession of it.
A living trust, 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 being held “in trust.”
Unlike a will, which transfers property directly from the owner to the beneficiaries upon the owner’s death, this type of trust allows a trustee to take over the owner’s property or assets. Basically, the trustee acts like a middleman before giving it to the assigned beneficiaries. This element of a living trust is the key to why they are so beneficial in helping to avoid probate.
As mentioned above, a living trust negates the need for probate in order to transfer ownership of the property because the trustee already has legal possession. In other words, the contents of the trust are already in possession with someone else and cannot be probated.
In general, there are two types of living trusts that are important for avoiding probate:
- Basic Living Trust: This refers to the standard version of an inter vivos trust and is what was discussed above. Again, it may assist an individual in avoiding probate proceedings; and
- AB Trust: An AB trust, also known as a “living trust with marital life estate,” is a special type of trust that is created by a married couple. Since its main purpose is to minimize the amount of taxes paid on an estate, it can be used to bypass probate and also to save on estate taxes.
Instead of 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 can use that property with certain restrictions, but does not own it outright. There are tax savings because the second spouse never retains legal ownership of the property.
To create a basic living trust, first requires the drafting of a document entitled, “Declaration of Trust.” It is very similar to a will and identifies the appointed trustee and beneficiaries. It also describes the rules for the trust and how the trustee should distribute the contents of the trust.
Sometimes the individual creating the document will be permitted to name themselves as the trustee. In such a scenario, the individual will transfer ownership of either some or all of the property to themselves in their capacity as trustee.
For example, a person might sign a deed transferring their house from themselves to themselves “as trustee of the John Doe Revocable Living Trust…”
After this is complete, the document will need to be signed in front of a notary public or witness, along with a few other specific legal requirements. These vary by state, so it may be in your best interest to hire a living trust lawyer to ensure that the basic living trust will be enforceable.
The inheriting parties (i.e., the beneficiaries) are named in the Declaration of Trust. The parties selected may be changed at any time prior to death. Additionally, the entire trust can be revoked at any time prior to death.
Upon death, the person who was named in the trust document (i.e., the trustee) transfers ownership of the trust property to the inheriting parties. In most cases, this person can manage the entire process in a few weeks with some simple paperwork, which effectively eliminates the need for a probate court to intervene.
In general, matters involving property and assets may present some challenges. This is because there are many different areas of law that need to be considered, along with the laws of a particular state. When adding the rules that apply to trusts and probate issues to an already complex area of law, an individual matter can become quite complicated.
Therefore, hiring a probate lawyer may be in your best interest. A local lawyer who has experience in this area will be able to guide you through the proper legal formalities for creating a living trust to avoid probate. They will also know which areas of laws to consider as well as the laws that may apply in your particular state.