Is It Necessary to Try to Avoid Probate?

Clients sometimes come to me hoping to set up their estate in a way that will avoid probate after their death. Occasionally, especially if they have limited assets, this can easily be done, such as by created a lady bird deed for a home that adds another person to the deed. Often, though, especially with more complex assets, this would typically involve creating  a revocable living trust. While there are some people who can benefit from doing this, usually people’s fears of probate are way overblown.

the pros and cons of avoiding probate

Here are the major concerns I typically hear and why you shouldn’t worry about them:

  1. Taxes. While there is a federal  estate tax on the books, it applies only to estates worth more than $5 million. If your assets don’t total that amount, your heirs will not pay taxes on what they inherit from you.
  2. Privacy. It is true that wills deposited with the court are public property while trusts don’t need to be filed. In theory, then, anyone can see who you have left your estate to. In reality, though, unless you are a famous person it’s unlikely anyone is going to bother trudging to the courthouse to peek at your file.
  3. Fees. There are costs involved with a probate–court costs, attorney fees, and the like. But setting up a revocable living trust also has fees attached to it, and they are much more than the cost of drafting a will.

Here are the biggest downsides to trying to avoid probate with a revocable living trust:

  1. Documentation. The original trust is not filed with the court, and so can easily be lost over the years. Without that document, proving a person is the successor trustee (and entitled to the deceased person’s assets) is impossible. I have had several clients over the years who swear they are the successor trustee, but since the original trust had been drafted decades earlier and no one could find it they were never able to locate it.
  2. Trust not properly “funded.” After creating the trust, and after each asset purchase thereafter, the trustee’s home, cars, bank accounts, stocks and other assets must be placed into the trust. So many times a trustee passes away and one or more assets is discovered to have remained in their own name. That asset can only be disposed of by–you guessed it–starting a probate.

This is not to say no one should create a revocable living trust. But in my experience most people should instead create a valid will (with an attorney, so there are no mistakes that can’t be corrected after you pass on) and not worry about their heirs needing to go through the process of probate.

For a FREE consultation about a probate or a will, contact the Law Office of Gary M. Landau by email or call 954-979-6566. Attorney Gary Landau personally returns all calls to him.

The Pros and Cons of a Revocable Living Trust

Sometimes clients come to an attorney wanting to create a Revocable Living Trust. What this means is that a legal entity, or trust, is created to house your assets for your use during your lifetime (hence the living), which you can cancel or change at any time (hence the revocable).

Pros and Cons

There are good reasons you may want to do this, and others why it’s not the best way to go.

The Pros:

  • Trust assets don’t go through probate. After the trustee passes away, the successor trustee (named in the original document) steps right in and becomes the new trustee. This means that all assets in the trust pass to this person (or people) without needing to go through probate.
  • There’s little time delay. Because the successor trustee has access to trust assets right away, heirs don’t have to wait until these items go through probate before they dispose of them, such as selling a home.
  • It affords more privacy. Unlike a will, a trust is not filed with the court, so the details of your trust cannot be accessed by the public.
  • You can change your mind. If you decide at any time that you want to move your assets out of the trust and back into your name, you can do so.

The Cons:

  • There are costs involved. A trust is a complex legal document that is best created by an attorney.
  • You have to “fund” a trust. All of your assets must be moved individually into the trust. This is a time-consuming process, as you need to contact your banks, investment and insurance companies, and other asset-holders to change the ownership of each account. You also need new deeds to move any real estate into the trust.
  • You still need a will—and maybe a probate. Assets falling outside the trust have to be probated by the court. I see this often in my practice, where home deeds or bank accounts were never moved into the trust, perhaps because they were acquired years after the trust was formed.
  • You have to pay taxes. Despite what many people erroneously believe, income earned by the trust during the trustee’s lifetime is attributed to the person, requiring the payment of income tax. And if the value of the trust at the time of the trustee’s death reaches the IRS threshold for estate taxes, the tax must be paid.
  • If a trust is lost, there is no way to retrieve it. Since this document is not filed with the court, the only version is the one you hang onto. A client recently came to me claiming she is the successor trustee, but since the trust was drafted decades ago and couldn’t be found, we had difficulty proving she was entitled to the inheritance.

For more information about whether a trust is right for you, contact the Law Offices of Gary M. Landau, P.A. at 954-979-6566 for a free consultation.