What is Probate Anyway? Do I need it? Can I avoid it?
Probate is the court process set up in each State’s law to transfer ownership of your assets (car, home, bank accounts, etc.) after your death to your beneficiaries (if you have a valid Will) or heirs (if there is no valid Will). In a nutshell, it involves having the probate court judge admit the Will, if any, notification to and payment of creditors, and ultimately distribution of your assets.
Why would you want to avoid probate?
For most people, the main reason is the cost of probate (primarily attorney fees). Also, probate usually takes a bare minimum of four months to complete, and it may last much longer.
What assets go through probate?
First, let me make this clear – A Will does not avoid probate. It just tells the probate court whom you wish as personal representative (“executor”) to be in charge of the procedure, and to whom you wish your assets to pass at your death.
Assets that pass automatically at death (jointly-owned property with right of survivorship and assets which are titled with a named beneficiary, like life insurance) do not go through probate.
In addition to joint ownership and beneficiary designations, many people use a Revocable Living Trust to avoid probate. Married couples with large estates should use them to save on estate taxes.
What is a Revocable Living Trust? Do I need or want one?
A Trust is merely an arrangement in writing whereby assets are placed under the control of a Trustee or Trustees for the benefit of a named beneficiary or beneficiaries. It is called “revocable” because the maker retains the right to amend or revoke it. It is called “living” because it set it up while you are alive, rather than through your Will at your death.
If being used for you to avoid probate, you normally are the one who sets it up (the “Settlor” or “Grantor”); you are the initial Trustee (maintaining complete control over your assets), and you are the Beneficiary until your death. In the Trust, it states who will take over as Trustee at your death, and like a Will, it says to whom the Trust assets are to be distributed at that time.
In order for the assets to avoid probate, they must be transferred to you as Trustee of your Trust. For real estate, this involves new deeds to transfer ownership to the Trust. Financial accounts are retitled in the name of the Trust. The Trust may also be the beneficiary of life insurance, retirement accounts, etc. It is also normally made the beneficiary under your Will for any assets which do pass through probate.
Assets that are not transferred into the Trust will be subject to go through probate unless they are jointly-owned or have a named beneficiary.
Why do more people not use a Trust to avoid probate?
For most people, the reasons they do not use a Trust are two-fold: First, they have not heard about them, or they have heard that they are only for the rich. Second, they are a bit more expensive than doing similar planning through a Will. However, the additional cost is in the hundreds of dollars, and the potential savings are in the thousands of dollars.