Let’s talk about trusts.
You might ask, “Why spend a bunch of money on a trust? I won’t be around after I die.” No, you won’t, but those to whom you leave your estate will be around, and they will have to clean up your mess if you don’t do some estate planning. You might ask, “What kind of a mess? I am a very organized person. I even have a will.” A will is a good idea, and as long as your estate falls within the limits of a small estate, your estate can be administered as a small estate without the formalities of probate. The small estate limits are $75,000 in personal property and $200,000 in real property. These are gross values. In other words, if your house is worth $250,000 and has a mortgage with a balance of $245,000, your estate does not qualify as a small estate. There are fees and costs that are incurred in a small estate, which has to be administered through the probate court, but these fees and costs are much less than the fees and costs that are incurred by an estate that exceeds the small estate limit and requires probate.
You might ask, “What’s the big deal about probate, and who cares?” The answer is that probate is time consuming and expensive, and the people who care are those who will have to spend the time to get through probate and who will have to pay for it. You might ask, “Why should a probate be required if I have a will? Isn’t that why I have a will?” A will does not avoid probate. It gives directions as to how you want your estate to be distributed and who you want to administer your estate (your “personal representative”). In order for your personal representative to be able to distribute your estate, your will has to be admitted to probate, notices have to be mailed and published, an inventory and accounting have to be filed, and, in the end, the probate court has to enter a judgment authorizing your personal representative to distribute your estate. Your personal representative may be required to post a bond, there are filing and publication fees to be paid, and, of course, there will be attorney fees to be paid.
“Good Lord,” you say. “No one told me that. So, how does a trust avoid probate,” you ask.
Here’s how it works: Ownership of your assets is transferred to your trust. Upon your death, the trustee of your trust distributes the trust assets to the beneficiaries in accordance with the terms of your trust. You might ask, “How come a trustee can distribute trust assets on my death but my personal representative has to go through probate and get a court judgment to do so?” Here’s the answer: Once you place your assets in a trust, you no longer own the assets. Your trust is the owner of the assets. The trustee has control of trust assets and can distribute them under the authority granted to the trustee by the terms of the trust agreement. With a will, you remain the owner of your assets, and upon your death, your estate is the owner of your assets. A will does not give a personal representative the authority to distribute assets from your estate until the probate court issues a judgment authorizing him/her to do so.
“That sounds like a bunch of legaleze, “ you say. “Are you sure?” “Yep,” We say. “Are there ways to avoid probate other than through a trust?” you ask. “Yes, there are, but this article is about trusts, and we only have 240 words to do it in,” we say. “Lawyers,” you think to yourself.©
© Allen Drescher