You’ve done your estate plan: you have a will, powers of attorney for finances and health, and a revocable “living” trust. So will your estate avoid probate?
Trusts are commonly used to avoid probate. However, simply having the trust is not enough. Your assets must be held in your trust at the time of your death to avoid probate administration. This means that you need to transfer your home, car, bank and investment accounts, and so on so that they are held by the trustee of your trust, and not by you alone.
(You may be the trustee of your trust; you will still need to transfer the title to your assets to avoid probate.)
There’s an old rule in the English common law (which is where American law comes from) that prohibits dead-hand control: you can’t own things when you’re dead. Once a person dies, the assets that they owned at the time of their death become part of their estate. The estate owns the assets. It’s the transfer of property from the estate to the deceased’s heirs that the probate court oversees.
Probate administration, therefore, transfers the ownership of so-called “probate assets” - assets you own in your name alone, that don’t pass by beneficiary designation or joint ownership.
A trust works by placing ownership of your assets in the name of your trust, which is not a person and can’t die. The trust owns and manages the assets for the beneficiaries of the trust, whoever those might be: you or, after your death, the people you want to have your property.
When you die, the trust agreement, which governs the management of the trust assets, will determine how the assets are held or distributed.
The typical probate-avoidance trust will have you as the beneficiary during your lifetime; you get to live in the house, access the bank accounts, and generally enjoy the use of your assets. Once you die, the trust will specify the way in which you want the assets to be treated: held for your young children to pay for their education, for example, or distributed outright to your adult children.
It’s important to note that trusts still require administration after your death; there are required notices to beneficiaries, taxes, and procedures that should be followed. However, a trust will generally allow your beneficiaries to do all this in private, without probate court supervision.
Trusts are a flexible tool in the estate planning toolbox and can be used to achieve a variety of goals, from asset protection to probate avoidance. The way your trust should be drafted and funded will depend on your assets and your goals. It’s important to discuss your goals with an estate planning attorney so that they can design the right estate plan for you.