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How Does a Living Trust Avoid Probate?

Probate is one of those dreaded words that we hear from time to time that immediately conjures up thoughts of the courts taking away property that has been in the family for years. The problem with probate is that many people do not understand exactly what it is, and so they assume the worst. The truth is that probate is merely the legal process used by the court to officially confirm the validity of the decedent's last will and testament, while settling their debts and distributing their assets.

The horror stories that we’ve all heard concerning probate come from the fact that the process can be very time-consuming and costly since it involves the courts and attorneys. It is not uncommon for probate proceedings to take anywhere from six months to a year to complete, during which time the beneficiaries do not have access to property or assets designated to them in the will. Probate also requires the executor of the will to settle all outstanding debts held against the estate before any assets can be transferred to the beneficiaries.

There Are Different Levels of Probate

If a person dies with or without a last will and testament and they have a substantial amount of property and assets in their estate, then the probate proceedings can be very time-consuming and expensive. Attorney's fees, court costs, executor's fees, and any other expenses incurred by the court when processing probate are all paid for out of the proceeds held within the estate. This process is also very lengthy and while it is occurring, the beneficiaries do not have access to the estate’s assets.

It is possible for the probate court to release certain short-term support funds to the beneficiaries while the process is ongoing, but this is by no means guaranteed. There are simplified probate proceedings available depending on the value of the estate and depending upon the state of residence when the person died. The simplified probate procedures allow individuals to petition the court to circumvent probate if the state does not exceed the value set by the state. Most people, however, do not wish to leave these decisions up to a court.

The Living Trust to the Rescue

Probate involves taking inventory of all property and assets and appraising those assets in order to pay debts and taxes incurred by the estate, and then distributing the remaining funds to the beneficiaries afterward. When a person establishes a living trust, they are able to place all of their property and assets into that living trust. The revocable living trust basically becomes the owner of everything held within the trust, and the person who formed the trust maintains control over the assets and property in the name of the trust. They are designated as the trustee.

When the trust is formed it designates beneficiaries, which generally are the children or other loved ones of the person who formed the trust. If something should happen to the person who formed the trust, all the assets would transfer to the beneficiaries. In the event of their death, the trust maker appoints another person to act as the trustee in their absence, and that individual or legal firm assumes the responsibilities of administering the trust. This setup creates several different advantages:

  • Living trusts allow the transfer of property without involvement of the courts
  • The transfer of assets occurs quickly and requires no fees
  • Transfer of assets occurs in private since there are no open court proceedings
  • A separate tax return is not required specifically for the trust

The main difference between a living trust and a last will and testament is that the living trust creates its own legal entity in which all of the property and assets are contained. A last will and testament merely designates the intent of the estate holder in regards to how they wish their property and assets to be distributed after their death. This process usually requires the involvement of the court because the property must be legally transferred from one person to another. The living trust avoids this because it is already established as legal owner of the property and the beneficiary is already established as a legal recipient of those assets.

How to Create a Living Trust

Create your living trust document in just minutes online by using our customizable living trust form.