| Avoiding Probate Through Living Trusts
It has become an increasingly common goal of those undertaking their estate planning to avoid the involvement of
the Probate Court in the settlement of their affairs after death. While there are several ways to structure an estate
plan and the ownership of assets to achieve this goal, planners have found that through the use of Living Trusts, the
desired goal of avoiding Probate Court involvement can be achieved with the least amount of risk or loss of
control over assets.
To understand the value of the Living Trust in avoiding Probate, it is first necessary to understand the Probate
Court process itself. In its simplest form, the Probate Court process is one in which the Probate Court will re-title
the assets owned by the deceased person at the time of his or her passing. Since assets owned by a person in his
or her own name cannot be dealt with after that person's death, it is necessary that there be a Court process to
orderly administer these assets and transfer them to those persons named in the decedent's will (or to those
persons who would inherit under state law if there was no will). Due to tax filings and creditor rights, it can often
take anywhere from nine months to two and a half years to complete the probating of an estate. Coupled with the
cost of the Court process and the associated legal fees, people often labor to avoid subjecting their assets to this
To fully avoid the Probate Court process, at the time of death you cannot own assets in your name alone.
Understanding this, many single people and surviving spouses will place their assets in joint names with children or
other relatives. By doing this, at the time of death, the assets will pass by rights of survivorship to the surviving joint
owner without the necessity of Probate Court involvement. While this sounds as though the goal has been
achieved, this approach can be fraught with disaster. The stories of jointly owned real estate with children, who
then mortgage the property and lose it to foreclosure, or pledge the real estate as part of a business venture only
to lose it in bankruptcy or to a creditor, are well known issues. Divorce of a joint owner, creditor problems or
death of the younger joint owner only add to the reasons why this approach to avoiding Probate is not the best
The better approach to avoiding Probate is through the use of a funded Living Trust of which the creator of the
trust is also the Trustee. The Living Trust, commonly referred to as the Revocable Trust or Family Trust, is a
private contract between the person or persons creating it, the Grantor, and the person or entity they have chosen
as their Trustee. It is private since no court intervention or formal legal entity is involved in authorizing, creating or
overseeing its operation. It is "Living" since the Trust is created currently and given life by providing it an asset to
own. Typically, the asset it owns is an initial funding of a nominal amount. By funding the trust it is legally in
existence and has "life".
Once created, the Trust can be made the owner of all of your assets, so that at the time of death, you own no
assets in your own name, and therefore have no need for Probate Court involvement. The Trust would name the
creator or Grantor as the sole Trustee. By doing this only you, the creator of the trust, would have control over the
assets during your lifetime. The trust would be drafted to allow you to have exclusive rights to the assets placed in
the trust, and upon your death, the assets will pass (without Probate Court intervention) directly to the people
named as beneficiaries. A related benefit to this type of arrangement is that should the beneficiaries be young, the
Trust can provide terms under which assets for young children can be held until they attain a more mature age.
During your lifetime, the only change required is that the name on your various assets (bank account, stock
brokerage accounts, real estate, etc...) be changed to reflect the Trust ownership. Bank accounts and other assets
would no longer have your individual name on it, but rather, would have the Trust's name, such as the "John Jones
Family Trust" rather than "John Jones", individually. The income earned would be taxed as it always has been
taxed, using your social security number as the identifying number for the Trust. For married couples with
substantial family assets the funded Living Trust, in addition to avoiding Probate, is used to help defer or eliminate
the impact of the federal estate tax upon the death of one or both spouses. The very simple Living Trust that is
used for Probate Court avoidance purposes would be tailored to capture the various allowable tax benefits. These
tax motivated trusts are commonly referred to as Credit Shelter Trusts, Qualified Terminal Interest Property Trusts
(Q-Tip) or A-B Trusts.
By creating and funding a private Living Trust you afford yourself maximum flexibility in controlling your family
assets during your lifetime while avoiding the expense and delay associated with Probate Court involvement in
passing your assets to your heirs after you have passed away.
To contact Lynn, telephone (413) 822-9360 or click on the Contact Lynn button on the left and send her an email.
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