Probate assets consist only of assets owned by the decedent at death that do not pass automatically (i.e., by operation of law) to the intended beneficiaries. A person’s will deals only with probate assets – it does not control the transfer of non-probate assets.
Examples of non-probate assets include life insurance policies (because the insurance proceeds are paid to the beneficiaries of the policy according to the terms of the policy contract, not according to a will), retirement accounts (because upon the death of the owner of a retirement account such as an IRA or 401(k), the monies are paid to the person or persons listed on the decedent’s beneficiary designation form) , and jointly owned property (such as a house or apartment owned jointly by a husband and wife). But keep in mind that a person’s taxable estate for estate tax purposes includes both probate and non-probate assets. The estate tax is discussed in more detail later in this book.
Creating A Trust Can Help Avoid Probate
Property that is owned by a trust is non-probate property, because at the creator’s death the terms of the trust agreement determine what happens to the property, not the creator’s will. Unlike a will, a trust does not have to go through probate. Thus, property owned by a trust avoids probate and is managed without the hassles and expense of probate court proceedings.
“Probate?” is discussed in more detail in my book “Nothing But The Truth About Estate Planning, Probate And Living Trusts”.Download your copy here: Nothing But The Truth About Estate Planning, Probate And Living Trusts by Larry Israeloff CPA & tax attorney.
Probate is the legal process that takes place after someone dies of proving the validity of a will or establishing who is entitled to receive the decedent’s property under state intestate succession laws if there is no will. The probate process is handled by the local surrogate’s court and governed by state law. Probate involves paperwork and court appearances by lawyers, which costs money.
As a general rule, a will has no legal effect until it is probated. Probate includes proving in surrogate’s court that a decedent’s will is valid, identifying and collecting the decedent’s property (also referred to as the decedent’s estate), paying debts and taxes of the estate, and distributing the remaining property as the will (or state intestate law, if there is no will) directs. In effect, probate is the process that enables heirs to receive property that is rightfully theirs.
Advantages of Avoiding the Probate Process
Wills and probate proceedings are matters of public record. If you would like to keep your affairs private, and prefer that people don’t know how your estate was distributed, avoiding probate through a trust or other mechanism is the only way to do so.
The probate process can be complicated and time consuming, so it may take several years to completely resolve everything. Typically, assets are frozen and unavailable to beneficiaries (including the surviving spouse) for a period of time without prior court approval. Avoiding probate can speed up the process of settling your estate.
Probate costs, including attorney’s fees, can be expensive. This is especially true if you own real estate in a different state, because probate proceedings would be required in both states. A trust can help to correct this problem.
“What Is Probate?” is discussed in more detail in my book “Nothing But The Truth About Estate Planning, Probate And Living Trusts”. Download your copy here: Nothing But The Truth About Estate Planning, Probate And Living Trusts by Larry Israeloff CPA & tax attorney.
You should always work with a lawyer when setting up a trust. A poorly created trust can be confusing, expensive, and/or ineffective. The trouble with do-it-yourself planning is that even if your situation seems simple, you are not aware of and won’t think of the many unusual things that can go wrong, especially with wills and trusts. These mistakes can end up costing you or your heirs a lot more than you saved in legal fees.
If you have a unique situation, need a special needs trust for a disabled beneficiary, or are overwhelmed by a complex or large estate, hiring a trusts and estates lawyer will help you answer any questions and ensure that a legal and effective trust is created.
As both an attorney and a CPA, I am a “one-stop shop” for legal, accounting, tax and financial planning services. I can help people more effectively manage their wealth and establish an estate plan that is coordinated with and fits neatly among all the pieces of their personal lives – household budget, cash flow, investments, education planning, taxes, and retirement planning.
“Why Retain An Attorney To Establish A Trust?” is discussed in more detail in my book “Nothing But The Truth About Estate Planning, Probate And Living Trusts”. Download your copy here: Nothing But The Truth About Estate Planning, Probate And Living Trusts by Larry Israeloff CPA & tax attorney.
A trust can own almost any kind of asset except for retirement plans. The types of assets that can be retitled in the name of the trust include cash accounts such as checking accounts, savings accounts, money market accounts and CDs; brokerage accounts; non-qualified annuities (and the trust can also be named as the primary or secondary beneficiary); monies owed to you; oil, gas and mineral rights; and royalties, copyrights, trademarks, and patents.
Tangible personal property such as jewelry, clothing, books, household goods, furniture, antiques, collectibles, artwork and pets can also be owned by a trust.
Business interests including shares of stock in a closely held corporation, partnership interests, and membership interests in limited liability companies can also be transferred to a trust, but you should consult any shareholder agreements, partnership agreements, and operating agreements for restrictions on transfers and specific procedures to retitle the shares in the name of the trust.
Finally, real estate can be retitled (or purchased) in the name of the trust, but the transfer requires recording a new deed in the locality where the real property is located.
The Amount of Assets Required To Establish A Trust
There is no minimum amount of money or type of asset required to establish a trust. Although a trust can be funded with a small amount of money, whether or not to create one is a financial decision based on the overall benefits and the estate plan, and not on the amount of the trust itself.
Trusts are discussed in more detail in my book “Nothing But The Truth About Estate Planning, Probate And Living Trusts”. Download your copy here: Nothing But The Truth About Estate Planning, Probate And Living Trusts by Larry Israeloff CPA & tax attorney.
The person who creates a trust is called the creator, the settlor, or the grantor. The trustee is the person or persons who hold title to the trust property in their name. The trustee has a fiduciary duty to protect and manage the trust property for the benefit of the trust beneficiary. The beneficiary is the person or persons for whose benefit the trust is managed and administered. The creator of a trust can also be the trustee, the beneficiary, or both. A trustee who is not the creator can also be the beneficiary. So although the same person can occupy more than one role in a trust, each of the three roles remain separate and distinct.
The Costs Associated With Setting Up A Trust
A trust is created by signing a trust agreement with the trustee and then transferring property into the name of the trust (which is referred to as funding the trust). A trust does not exist until property is actually transferred into it, even if a trust agreement is signed. It does not take a long time to form a trust – only as long as it takes to draft and sign a trust agreement and then complete the necessary steps (usually the completion of paperwork) to transfer the property into the name of the trust. A trust can cost anywhere from a few hundred dollars to thousands of dollars in legal fees, depending on the complexity of the trust agreement’s terms and the type and amount of property to be transferred into the trust. “The Parties Involved In A Trust” is discussed in more detail in my book “Nothing But The Truth About Estate Planning, Probate And Living Trusts”. Download your copy here: Nothing But The Truth About Estate Planning, Probate And Living Trusts by Larry Israeloff CPA & tax attorney.
To the layperson, trusts can appear complicated. People often think trusts are only for the very wealthy. In reality, trusts can be useful for people of all income levels.
A trust is a legal arrangement under state law governed by a written trust agreement by which property or assets are owned in the name of one or more trustees with a fiduciary responsibility to protect and manage the property for the benefit of another person or persons. A trust divides the ownership of property into two parts: the legal title, which is in the name of trustee, and the beneficial ownership interest, which is managed by the trustee for the benefit of the beneficiaries.
A trust is created by the signing of the trust agreement by the creator (also called the grantor or the settler of the trust) and the trustee. The trust agreement specifies the duties and obligations of the trustee and how the income and principal of the trust will be distributed to the named beneficiaries. Trusts provide considerable flexibility in transferring property from one generation to another.
A trust created during the creator’s lifetime is called an “inter vivos” trust or living trust. A living trust can be either a revocable trust or an irrevocable trust. A revocable trust is a trust that can be changed or revoked by the creator. An irrevocable trust cannot be changed or revoked by the creator (although an irrevocable trust can sometimes be changed or terminated by the trustee under certain circumstances).
A trust created in a will when the creator dies is called a testamentary trust. It is a part of the creator’s estate plan. Testamentary trust is always an irrevocable trust, because the creator is not alive to change or revoke the trust.
Common Types of Trusts
Living trusts (revocable and irrevocable) and testamentary trusts can be created for many different purposes and are referred to using many different names depending on their main purpose, such as asset protection trust, charitable trust, special needs trust, credit shelter trust, bypass trust, dynasty trust, grantor trust, Crummey trust, life insurance trust, personal residence trust, and many others. Despite the variety of labels applied to them, all trusts are basically arrangements to hold and control property for the benefit of other people.
Trust As Part Of An Estate Plan is discussed in more detail in my book “Nothing But The Truth About Estate Planning, Probate And Living Trusts”. Download your copy here: Nothing But The Truth About Estate Planning, Probate And Living Trusts by Larry Israeloff CPA & tax attorney.
From a simple standpoint, many people initially think of an estate plan as having a will. On the more complicated end, some think of an estate plan as an elaborate arrangement only rich people need to plan who gets what out of their millions of dollars. Most people think estate plans only apply to the ultra-wealthy.
But no matter how large or how modest, everyone has an estate. Your estate is comprised of everything you own— your car, home, bank accounts, investments, life insurance, furniture, personal possessions. And just like the wealthy, you probably want to control, with the least expense, how those things are given to the people or organizations you care most about. That is estate planning—making a written plan in advance with instructions stating whom you want to receive the things you own after you die.
Estate planning is not just for “the wealthy.” Good estate planning often means more to families with modest assets, because they can afford to lose the least.
Estate planning is discussed in more detail in my book “Nothing But The Truth About Estate Planning, Probate And Living Trusts”. Download your copy here: Nothing But The Truth About Estate Planning, Probate And Living Trusts by Larry Israeloff CPA & tax attorney.
A person who dies is known as the “decedent.” A decedent who dies without a will is known as dying “intestate.”
If a person dies without a will, a court of law must follow state law (instead of the decedent’s desires) to establish who is entitled to receive the decedent’s property. These state laws are called laws of intestate succession. State intestate laws generally direct the distribution of a decedent’s estate based on hereditary succession, i.e., to surviving relatives.
The court process that takes place after a person’s death to validate the will or to determine proper intestate succession is known as probate, and is discussed in more detail later in my book “Nothing But The Truth About Estate Planning, Probate And Living Trusts”. Download your copy here: Nothing But The Truth About Estate Planning, Probate And Living Trusts by Larry Israeloff CPA & tax attorney.
Estate planners are often asked whether trusts are only for the wealthy. Though it is not necessary for some people of modest means to establish a trust, it can be a useful estate planning tool, even if you are not rich.
Trusts establish a legal relationship whereby property is held by one party for the benefit of another. Trusts offer peace of mind that your assets will be dispersed according to your wishes once you are gone. Like a will, trusts can be used for any type of property and allow flexibility in the distribution of this property.
When you create a trust, you transfer ownership of some or all of your property to the trustee, who holds that property for the trust’s beneficiaries. For instance, if you want to place real estate in a trust, you would have that property titled in the name of the trustee. Trustees can be family members, friends, a trust company, a law firm, or a specific attorney or advisor.
Who Needs a Trust?
Anyone can avoid court administered probate upon death with use of a trust, but you should carefully consider if the expense connected with forming a trust is worth the investment. You should consider a trust if you have:
• Privacy or probate concerns
• Substantial real estate assets
• Large life insurance policies
• Specific instructions for how your estate is to be distributed once you are gone
• Desire to minimize estate taxes
• Need to protect your estate from creditors or lawsuits
If your accounts are held in joint tenancy or you have named beneficiaries for specific accounts or property, a trust might not be necessary. These assets automatically become the property of the beneficiaries upon your death without probate. For instance, if you own a home jointly with your spouse and both of your names are on the deed, your spouse will automatically become the full owner once you are gone.
An attorney can help you determine if a trust is the best option for you and your family.
What are the Benefits of a Trust?
The primary benefit of using a trust is to provide direction for managing your assets if you become incapacitated and upon your death.
A trust offers a great deal of flexibility. It can be revocable, which means you can make changes to any part of it or terminate it until the moment you are no longer capable of making decisions or communicating.
A trust also ensures your beneficiaries avoid dealing with probate at your death, thus saving time and money. Probate is the court process by which your will is proved valid, and through which your estate is administered after your death.
Finally, trusts are private, so the value and contents of the trust do not become a matter of public record once you die.
Have questions about your personal need for a trust? Then just call us to discuss your situation.