Probate Avoidance Revisited

A Probate Alternative

Nearly every family has a horror story about "probating" a relative's estate, the usual complaints being about how long it took, how much it cost, and how confusing and complicated the process seemed.  Not surprisingly then, avoiding probate is often the first thing out of people's mouths when they start doing their own planning.  But what does that really mean, how is it accomplished, and is it really worth the effort?

First of all, "probate" refers to the process of getting the title to a decedent's assets out of his or her name and into the names of the person's beneficiaries.  If a person dies, with or without a will but owning a residence, bank accounts, securities, even vehicles or other personal property in his or her own name, those assets must go through probate administration in the county court where the person was living at the time of death.  Even at its simplest, the process requires filing a lot of paperwork with the court and getting the court's approval for nearly everything the executor does.  It generally takes at least 8-10 months from beginning to end, and because most people need legal help navigating it, the process can easily cost $5,000 or more.

So, what's the alternative?  One that many people choose is setting up a "revocable living trust".  It's called "revocable" because they can change or get rid of it whenever they wish, and it's called "living" because they set it up while they're still alive.  They often name themselves the trustee - the person in charge of everything the trust owns - so there are no professional fees unless they need help investing the trust assets.  Then, they re-title all their assets in the name of the trust while they're alive, so there are no assets remaining in their own names when they die - thus no assets that need to go through court-supervised probate administration.

Even if probate avoidance isn't a primary objective, revocable trusts serve other important purposes, as well.  They can help provide necessary funds for young children until the children are old enough to receive outright distributions of assets.  Without a trust a beneficiary child would receive everything at 18, which might be a little early for someone not yet out of high school.  Similar provision can also be made for elderly parents or other family members with special needs who might not be appropriate recipients for large outright distributions.  Trusts can also protect the privacy of a decedent's affairs, as they are not required to be filed in a public probate office.  All wills must be filed there and are available for public inspection.

Finally, although there are few estates subject to federal estate taxes these days, trusts can be used to make sure no avoidable taxes are paid unnecessarily.

While these general comments may be helpful as an introduction to the subject, the only way to determine whether a trust can accomplish one or more of the desired purposes in a particular situation is to review those circumstances with a competent professional planner.  

(Posted January 18, 2012)