When a loved one dies, the last thing relatives need is worry about how to handle the estate. But complications, delay, and expense are inevitable if probate court becomes involved. A living trust gives you the power to avoid all that.
Wealth and Fame: No Immunity
Wealth is not a get-out-of-probate-free card. The rich and famous are not immune. For instance, Elvis Presley did not follow proper estate planning measures, and his estate was reduced considerably as it went through probate. The case of the late Anna Nicole Smith and her husband, billionaire J. Howard Marshall, is instructive. The 26-year-old Smith had married the then 89-year-old oil tycoon. Even though Marshall showered Smith with gifts and money during their 14-month marriage, Smith was never legally added to Marshall’s will.
Smith claimed that Marshall had intended to set up a trust for her and that Marshall’s son, E. Pierce Marshall, had interfered with his father’s attempts to do so. When Smith died in 2007 at the age of 39, she had been fighting in court over Marshall’s estate for more than ten years.
What is Probate?
Probate is a court-supervised legal proceeding in which the assets of a deceased person are distributed. If there is a last will and testament, the court will follow the wishes expressed in the document. Probate can take up to two years, even when there is no contest over the will. Lawyers may be required.
Probate involves potential publicity, delays, and expense. Even if you die with a legally binding will, the person you named executor will still have to file a petition in court to begin the probate process. Without a will, the court determines how the estate will be allocated, and the process can eat up 3% to 7% of the value.
Each state writes its own laws. Many give very small estates a break from probate. But a living trust can help your family stay out of probate court.
The Living Trust
One way to avoid probate is with a living trust. A valid trust lets you collect your property and insure that it will go to who you want, when you want.
Even though the trust owns the property, you keep control of your assets. Most people creating trusts name themselves as the initial trustee, meaning you keep complete control of your property. As trustee, you can add assets or remove them. Upon your death, the trust distributes your assets as you wish, without the need to enter probate court. The trust provides an efficient way to transfer your property to loved ones.
The trust has other benefits. If created properly, a trust can help avoid estate taxes (the federal estate taxed lapsed at the beginning of 2010, but its reenactment is expected). In the event the owner becomes incapacitated, the trust provides an easy way to let a manager take over your assets. And unlike probate court, which is public, trusts operate without the necessity of public exposure.
Making Your Trust Work for You
In order to be included, property must be transferred to the trust. Many experts suggest you place your most valuable property there, including houses, business interests, jewelry, antiques and art, and stocks and bonds.
Upon your death, the trustee simply distributes the assets as you have directed. That’s much different than probate, which involves filing the will and a petition in probate court, conducting an inventory, appraising the property (often involving a court-appointed appraiser), and adding up and paying estate debts and taxes, court costs, executor’s fees, and attorney’s fees. What’s left goes to your loved ones.
Although there are costs for setting up a living trust, the amount of money you save from avoiding probate is often worth the time and money spent on a living trust.