Categories: Estate planning, elder law, probate, trusts, Winston Salem, North Carolina, NC.
The old saying “An ounce of prevention is worth a pound of cure” certainly holds true in estate planning. Planning well can make certain that your estate wishes will be reliably carried out after you pass away, and can save your family the time, expense, and exasperation of having to pass your estate through the probate process in order to settle it, at a time when they are already in mourning following the loss of a loved one.
Probate is the public process where the state inventories the assets of a deceased person at the county courthouse, assesses fees on those assets, and makes sure that state law is followed by the executor or personal representative as he closes the estate. The process is rule-bound and bureaucratic, and the courthouse workers may be very controlling in protecting their domain.
Probate may take a year or more, and my clients who must go through probate frequently become frustrated and infuriated by the process. Frequently, clients must hire an attorney to help them through probate.
Avoiding Probate—A Trust is a Lot Like McDonalds
I tell my clients that the easiest way to keep your assets out of probate is to place them in a trust, with the revocable trust (which can be “revoked” or dissolved by the grantor at any time) being the most frequent type of trust that I recommend.
So, exactly how does a revocable trust keep assets out of probate?
Well, a trust is a lot like McDonalds.
McDonalds is organized as a corporation, which is not a person, but an “entity,” with its own separate lifetime.
Imagine that the President and CEO of McDonalds passes away one evening. Even though the President and CEO has died, McDonalds will still be serving Happy Meals to kids around the world the very next day.
Similar to McDonalds, a trust is its own separate entity, with its own independent lifetime. When the person who sets up a trust, called a “grantor,” dies, the trust does not die, but keeps right on living. Thus, any assets that the grantor has placed into his trust stay out of probate, because no trust death has occurred, and the trust continues to live.
Ancillary Administration
If a person with a simple will only owns real property (land and buildings located on the land) out-of-state, a separate probate process called “ancillary probate,” or “ancillary administration” may have to occur in each separate state where the real property is located, following that person’s death. A separate out-of-state attorney may have to be hired to assist with ancillary probate in each state where real property is held. This process can be costly, burdensome, and time consuming.
I tell my clients owning real property located in other states that they can avoid ancillary probate in those states following their deaths by having their revocable trust hold their out-of-state real property. Distribution of their out-of-state real property can then be managed by their trustee(s) following their death, saving time, hassle, and legal fees.
Trust Assets Remain Private
Probate remains a public process—so that after someone dies, anyone can see what his will says, and anyone can review his inventory of assets required by the probate process. In contrast, by law the trust document can remain private—following a death, only the trustee and the beneficiaries of the trust document have the right to see the trust document, not the government or public.
A revocable trust works best for people who hold valuables such as jewelry, art, coin collections, stamp collections, or firearms, because a trust keeps all of those valuables secret, and the valuables do not have to be inventoried by the government following death.
Marital Trust
Following death, a revocable trust may be set up so that it becomes an irrevocable marital trust, first benefiting the grantor’s spouse, then benefitting the grantor’s children following the spouse’s death.
The trust principal may then be protected against any creditors of the surviving spouse, and if the spouse enters a new marriage with an inappropriate partner, the new husband or wife will have no legal right to the trust principal, so that any remaining assets may flow to the grantor’s children following the spouse’s death.
Incapacity Planning
The revocable trust may be an excellent tool for managing the assets of an aging client. A grantor who is managing his own assets may add a spouse or younger child as co-trustees. If the grantor then becomes ill and needs help managing his assets, a co-trustee can step in right away, at any time, and manage all of the grantor’s assets when needed.
When Appropriate
If my clients hold $300,000 to $500,000 in assets or more, I talk with them about a revocable trust as a cost-saving option. I can set up an estate package with a revocable trust for only a few hundred dollars more than a standard will package. The revocable trust can provide benefits in both dollars saved and probate frustration avoided for loved ones left behind.