What is Probate and why does everyone want to avoid it?
When a loved one passes away, his or her estate often goes through a court-managed process
called probate or estate administration where the assets of the deceased are managed and
distributed. If your loved one owned his or her assets through a properly drafted and funded
Living Trust, it is likely that no court-managed administration is necessary, though the
successor trustee needs to administer the distribution of the deceased. The length of time
needed to complete probate of an estate depends on the size and complexity of the estate as
well as the rules and schedule of the local probate court.
Every probate estate is unique, but most involve the following steps:
-Filing of a petition with the proper probate court
-Notice to heirs under the will or to statutory heirs (if no will exists)
-Petition to appoint Executor (in the case of a will) or Administrator for the estate
-Inventory and appraisal of estate assets by Executor/Administrator
-Payment of estate debt to rightful creditors
-Sale of estate assets
-Payment of estate taxes, if applicable
What is a Revocable Living Trust?
A properly drafted Revocable living trust (RLT) is a powerful estate planning tool that allows you
to remain in control of your assets during your lifetime, have them managed during incapacity,
and efficiently and privately transfer them to your loved ones at death according to your wishes.
Sometimes referred to simply as a Living Trust, an RLT holds legal title to your assets and
provides a mechanism to manage them. You would serve as the trustee and beneficiary of your
trust during your lifetime. You also designate successor trustee(s) to carry out your instructions
for how you want your assets managed and distributed in case of death or incapacity.
In order for the Living Trust to function properly, you need to transfer many of your assets to
your Living Trust during your lifetime. The fact that it is “revocable” means that you can make
changes to it or even terminate it at any time.
What are the advantages of having a Living Trust?
Like a will, a Living Trust is a legal document that provides for the management and distribution
of your assets after you pass away. However, a Living Trust has certain advantages when
compared to a will. A Living Trust allows for the immediate transfer of assets after death without
court interference. It also allows for the management of your affairs in case of incapacity,
without the need for a guardianship or conservatorship process. With a properly funded Living
Trust, there is no need to undergo a potentially expensive and time consuming public probate
process. In short, a well thought out estate plan using a Living Trust can provide your loved
ones with the ability to administer your estate privately, with more flexibility and in an efficient
and low-cost manner.
Will I lose any control over my property if I create a Revocable Living Trust?
Creating a Revocable Living Trust and transferring your assets to the name of that trust will
generally not affect your ability to control such assets. During your lifetime when you are
mentally competent, you have complete control over all of your assets. As the trustee of your
trust, you may engage in any transaction that you could before you had a Living Trust. There
are no changes in your income taxes. If you filed a 1040 before you had a trust, you can
continue to file a 1040 when you have a Living Trust. There are no new Tax Identification
Numbers to obtain. Because a Living Trust is revocable, it can be modified at any time or it can
be completely revoked if you so desire. Upon your incapacity, the individuals you designate will
be able to transact on your behalf according to the instructions you have laid out in the Living
Trust. Upon your passing, the Living Trust can no longer be modified and the successor
trustee(s) you have designated will then proceed to implement your wishes as directed.
Do I have to transfer all my assets to my Living Trust?
Assets with beneficiary designations such as a life insurance policy or annuity payable directly
to a named beneficiary need not be transferred to your Living Trust. Furthermore, money from
IRAs, Keoghs, 401(k) accounts and most other retirement accounts transfer automatically,
outside probate, to the persons named as beneficiaries. Bank accounts that are set up as
payable-on-death account (POD for short) or an “in trust for” account (a “Totten Trust”) with a
named beneficiary also pass to that beneficiary without having to be titled into your trust. It is
important, however, to seek the counsel of an experienced estate planning attorney who can
advise on and assist with transferring necessary assets to your trust.
If I transfer title to real property to my Living Trust can the bank accelerate my mortgage?
Federal law prohibits financial institutions from calling or accelerating your loan when you
transfer property to your living trust as long as you continue to live in that home. The only
exception to the federal law, enacted as part of the 1982 Garn-St. Germain Act is that it does
not provide for such protection for residential real estate with more than five dwelling units.