Number 4 Reason For Living Trusts: Avoid Probate
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Ed. Note: Older adults have planned many aspects of retirement, but failed to create an estate plan. Explore how living trusts can help avoid probate.
By Michael P. Pancheri, Esq.
Reason #4: Avoid Probate. It is true that property in your revocable living trust will not go through probate when you die. That’s because the trust instrument spells out who gets the property. It’s a lot like life insurance, annuities, 401(k) plans, IRAs, and company retirement plans - those properties do not go through probate because they each have a designated beneficiary. Jointly-owned property, with rights of survivorship, doesn’t go through probate, either. It passes automatically to the surviving joint owner.
That does not mean, however, that your successor trustee is free to distribute the trust property immediately. It’s not as simple as that. Just because your property is in trust doesn’t mean that your outstanding debts don’t have to be paid. Likewise, the federal government still wants to collect its estate taxes; your state government still wants to collect its inheritance taxes; and the probate court still wants some fees even though most of your property may avoid probate. There probably will be trustee’s fees and attorney’s fees as well. In view of all these expenses, the successor trustee may be able to make some advanced distributions from the trust, but enough money has to be retained in the trust to pay all the debts and expenses.
Still, a reasonably efficient successor trustee will be able to determine fairly quickly just how much the potential debts and expenses will be, and he or she will then be able to make advanced distributions accordingly. In the final analysis, most revocable living trusts are able to distribute property more quickly and with much less cost than is possible through probate.
Does that mean that everyone should avoid probate? I don’t think so. Some people suggest a threshold limit of $100,000, exclusive of real estate, in order to justify the expense of a revocable living trust. I think the cutoff should be much lower than that. Most states have a simplified probate for estates valued at less than $20,000. If you’re in that situtation, then a simplified probate is probably right for you. However, if your probate estate is valued at more than $20,000, then you really need to look closely at a revocable living trust, especially if any of the other reasons for a revocable living trust apply to you. After all, it doesn’t take much to make up for the few dollars it takes to establish a revocable living trust.
Link to the series:
Number 1 Reason For Living Trusts: Protect Property for Beneficiaries
Number 2 Reason For Living Trusts: Reduce or Eliminate Estate Taxes
Number 3 Reason For Living Trusts: Managing Property upon Incapacity
Number 4 Reason For Living Trusts: Avoid Probate
Number 5 Reason For Living Trusts: Avoiding a Will Contest
Number 6 Reason For Living Trusts: Secure Your Privacy
Attorney Michael P. Pancheri is the founder and CEO of the Living Trust Network. You may contact him by email at info@livingtrustnetwork.com. You may also contact him at the Living Trust Network's web site at http://www.livingtrustnetwork.com
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