If you have your estate in a trust or if you’re considering it for the future, you may be wondering if it will help your loved ones avoid probate. Perhaps your parents have already set up a trust for their assets, and you are concerned about how it will impact the family after their death. You can learn about what a trust is and what it does, how to protect those assets and when you may need to go through probate.
What a Trust Does
A revocable living trust is an instrument used to place assets of an estate to avoid probate. The trust is set up an all assets are placed into it. You are not the owner anymore. The trust becomes the owner of the estate, but you can revoke your permission or change the status of the assets until your death.
When a trust is set up correctly, there is no need to go through probate. Whoever you have named as the beneficiary of the trust will automatically become the owner of the assets. The court doesn’t need to oversee transfer of ownership for the assets, which are placed into the trust.
Setting Up a Trust
A trust is established with a trust agreement, which involves the maker of the trust, also known as the grantor, the trustee, and the beneficiary. Typically, all three are the same person.
Once the trust has been created, it must be funded. Each asset must have its ownership transferred to the trust. It becomes the beneficiary of life insurance policies, annuities and other assets. Real estate may also be placed into a trust. Other beneficiaries may be added who will get those assets when the primary trustee and beneficiary dies.
Once the person dies, the trust doesn’t die with them. Instead, it is a separate entity that continues to live on. In fact, the next beneficiaries can leave the assets in the trust long after the original owner’s death.
How a Trust Avoids Probate
The purpose of probate is to ensure that the assets of the deceased person go to the person or people named in the will. The job of the court is to verify the will and ensure that the wishes of the decedent are carried out as stipulated in the will. The process can take from a couple of months to more than a year before the assets are transferred to the heirs.
When a trust is set up, the assets belong to the trust. You are no longer the owner of that property, but you become the primary trustee. Since you don’t own any of those assets, there is no need to go through probate. When the trustee dies, the trust assets go to the named beneficiaries.
An administrative trustee is named to manage the trust after your death. They take care of the tasks required, such as collecting from policies and accounts, paying outstanding debts, and distributing the assets to the beneficiaries.
When a Trust Goes Through Probate
Even though a trust is designed to avoid probate, it isn’t a guarantee that probate won’t be necessary. If the trust isn’t set up correctly and the ownership of the assets transferred to the trust, probate will still be required. Ownership of assets must be transferred from you to your trust individually.
Any new assets that are purchased after the trust has been set up must also be transferred to the trust. If this task isn’t completed, those assets will need to go through probate after the person’s death. The best way to ensure this doesn’t happen is to take the time to transfer the ownership as soon as you purchase the asset.
One way to ensure that new assets don’t have to go through probate is to create what is known as a pour-over will. This is usually done at the time the trust is created. However, the assets aren’t moved into the trust until the person dies. With this type of will, they are automatically moved at the time of death.
Benefits of Establishing a Trust and Avoiding Probate
You may wonder if the extra work or establishing a trust is worth the effort. In short, the answer is usually yes. One of the primary reasons is the lengthy timeline for probate. The probate process can take months and even years if the heirs contest the will or cause other delays. During this time, the beneficiaries have no access to the assets of the estate.
With a trust, the beneficiaries gain access to the assets very quickly once the trustee has died. They don’t have to wait months to take control or to transfer ownership.
Another benefit of a living trust is the reduced cost. Probate comes with a lot of fees, which must be paid before the assets can be dispersed. A trust allows the heirs to receive more of the assets.
It is a good idea to create a will even if you have a trust. While you won’t need a will to disperse the assets of the trust, it can take care of any assets that haven’t been added to the trust. If you don’t have a will and you end up with assets outside the trust, the court will decide who receives them according to state law.
Many people have the idea that you must have a lot of assets or a high net worth to establish a trust. However, anyone can create a trust with any assets of value. It doesn’t cost a lot to create a trust, and it isn’t much more complicated than writing a will. You will still be able to manage the assets in a revocable living trust, and you can change beneficiaries and other details of the trust at any time. You can even completely revoke the trust if you so choose.
A trust can be a simple way to avoid probate as long as it is handled in the right way. It is important to hire an estate attorney to create the estate and ensure everything is completed in the correct manner to avoid probate when the time comes.