After your death, the probate process can take a considerable length of time, during which your estate's assets are frozen and inaccessible to your heirs. The living trust can help to avoid probate obstacles.
A proper living trust bypasses the probate process for any assets held by the trust, which means a faster and smoother distribution of your assets to your beneficiaries.
What is probate?
Probate is a court-supervised process that is required before the assets in your estate can be distributed to your beneficiaries.
Having a will means the court-ordered distribution of your assets following probate will be in accordance with your wishes. But a will doesn't protect your assets from the probate process itself.
If you have a will, your executor must first apply to or petition the probate court to begin probate, and it's only after the process is completed that they are authorized to distribute the assets of your estate in accordance with the instructions you've set out in your will.
And if you don't have a will, your estate must still go through probate. Rather than an executor, the probate court appoints a personal representative who assumes the duties of an executor. Because there is no will, the distribution of your assets once probate is completed will be governed by your state's intestate succession laws.
While a number of factors have an impact on the length of the probate process, probate usually takes between one to two years to complete. And if you do have a will and it's contested, the probate process can take much longer before your estate is settled and your assets distributed according to the terms of your will.
How to avoid probate
Because the assets comprising your estate are frozen during the probate process, they remain inaccessible to your heirs until probate is completed. By using a living trust, you can avoid the necessity of the probate process for any assets that are held by the trust, and the distribution of those assets can take place immediately following your death.
The living trust works to avoid probate because the trust itself owns any assets you transfer into it. At your death, your estate is made up of all the assets you own. Because your living trust legally holds title to the assets it holds, these assets aren't considered a part of your estate, and therefore do not need to go through the probate process.
Benefits of a living trust
In addition to avoiding probate, a living trust offers a number of other benefits, including:
- Continued control. Unless it's specifically made into an irrevocable trust, a living trust is revocable, meaning you can make changes to it at any time. People usually appoint themselves as the trustee of their living trusts. By appointing yourself as trustee, you retain control over the assets in the trust. You can move assets in and out of the trust, refinance assets, and even terminate the trust if you decide it's no longer the ideal vehicle for your estate planning needs.
- Privacy. Because probate is a court process, everything involved in the process becomes a matter of public record, including the assets in your estate and how those assets are to be distributed. If you have a will, the terms of the will also become a matter of public record. A living trust, on the other hand, is a private document that remains private after your death.
- Loss of capacity. When you set up a living trust, you appoint a successor trustee who steps in after your death to distribute the trust's assets to your beneficiaries. However, this successor trustee also plays an important role in the event you become incapacitated and can no longer make decisions about the assets held by the trust. Your successor trustee will be able to take over the administration of the trust if this happens and make all the financial decisions necessary to maintain the trust and the value of the assets it holds.
- Minor beneficiaries. You get to dictate exactly how you want the assets of the trust distributed after your death, and this distribution doesn't have to happen immediately. For example, in the case of beneficiaries who are minors, you can set up a trust for their benefit until they reach the age of majority or an age where they will be mature enough to handle their inheritance.
How to set up a living trust
Because setting up a living trust is more complicated than setting up a will, it's always a good idea to consult with an estate planning attorney to ensure you set up your trust properly. If you opt to do it yourself, you need to make sure you're using proper trust language; your living trust must be properly drafted in order to be valid.
However, there's more to setting up a living trust than setting up a basic trust structure:
- Funding the trust. Even if you have set up your trust structure perfectly, your trust can only protect the assets it owns from probate. This means you need to properly transfer title of your assets to your living trust by filing any required paperwork, or, in the case of assets such as retirement accounts, completing the beneficiary designation with your trust as the beneficiary.
- Appointing a successor trustee. As mentioned above, you'll be designating yourself as the trustee of your trust, but it's important not to put off selecting and appointing a successor trustee. Since this person will assume essential duties if you become incapacitated or at your death, you should also make sure you choose someone whom you can trust to carry out your instructions.
- Pour-over will. A pour-over will plays an important role in conjunction with your living trust. With a pour-over will, any assets remaining in your estate after your death are transferred, after probate, to your living trust. For example, if you acquire an asset but die before you're able to transfer it to your trust, the pour-over will ensures that the asset will still be transferred to the trust. While a pour-over will won't avoid the probate process for those assets that remain a part of your estate, it does mean these assets will go toward funding your trust, and your successor trustee can then distribute them according to the terms of the trust.
If you want your assets to avoid the probate process, the living trust is an effective option in your estate planning process. Any assets held by your living trust will not be considered a part of your estate, and your successor trustee can begin distributing those assets according to the terms of the trust immediately following your death.
Find out more about Living Trusts