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How a Revocable Trust Works to Keep Your Assets Out of Probate

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.

How to Keep Your Car Out of Probate in North Carolina

Categories:  Probate, asset protection, Winston Salem, North Carolina, NC.

In North Carolina, it’s best to keep car ownership in one name only for liability reasons.  Although it may seem natural for couples to own a car jointly, if that vehicle is involved in an accident, the injured person’s attorney can sue both an at-fault driver and all owners of the car.  When a couple instead owns their vehicles only in their own names, an at-fault driver does not imperil his spouse’s separate assets.  Thus couples who own their cars separately can decrease their liability risk by up to 50% or more, depending on how financial assets are distributed between the couple.

Regarding probate, there are two main ways of keeping a car transfer out of probate court following a death, which in some cases can tie up or prevent use of the car for some time following the individual owner’s (or first-to-die of a joint owner’s) death:

  • Revocable trust.  Placing a car in a trust owner’s single revocable trust can keep it out of probate, because a revocable trust has its own lifetime which transcends the car owner’s death.  I do not recommend placing a car into a couple’s joint revocable trust, however, because this unnecessarily expands the liability of an individual car driver so that it imperils the joint financial assets of both members of the couple.
  • JTWROS.  Not everyone chooses trusts as part of their estate planning.  For couples or others who prefer to own their car jointly, they can own their car jointly in North Carolina with a right of survivorship (JTWROS, or JWROS), so that it will pass directly from one to the other party outside of probate at the first death.

Why is the JTWROS designation important for jointly-owned vehicles in North Carolina?

Even given the increased liability risk, some people prefer to own their car jointly.  Normally in North Carolina, when a couple of any kind jointly purchases a car at a dealer and does not give the dealer specific instructions about how they want the car owned, the dealer will fill out the paperwork in a way that translates into tenancy-in-common ownership on the car title.  This means that each member of the couple will own a 50% undivided interest in the car (which is, unlike land, and undividable asset) with no survivorship rights.   This can produce undesirable results.

The JTWROS Title

In order for the survivor of any couple, including a married couple, to inherit a jointly owned car in North Carolina (not held in a trust) outside of probate, the joint owners must explicitly tell the dealer that they want the car owned as joint with right of survivorship, or JTWROS.  They also must insure that the letters “JTWROS” or “JWROS” appear on the car title itself.  Without JTWROS on the car title, there is no right of survivorship held by the surviving owner.

It is important to specifically check the car title for the JTWROS designation, because many DMV workers do not understand the JTWROS designation, or do not know that JTWROS ownership of vehicles is permitted in North Carolina.

The JTWROS designation on the car title will insure that if one of the joint car owners dies, the remaining living owner will then receive full ownership of the car (except for any portion owned by the lender) in an automatic out-of-probate transfer.

5 Ways To Keep Your Assets Out Of Probate

judge-with-gavelCategories:  Estate planning, revocable trust, trusts, living trust, elder law, Winston Salem, North Carolina, NC.

Probate, the court-associated process where your estate debts are paid, your estate is settled, and your assets are distributed to your heirs or beneficiaries, can be costly and lengthy. In addition, probate is a public process where you estate assets may be viewed by anyone.

It’s a good idea to keep as many assets out of probate as possible. Here are 5 ways to accomplish this:

1 – Set Up Your Financial Accounts to Transfer to Your Beneficiaries at Your Death.

Your bank, brokerage, retirement, and life insurance accounts can normally be set up to either “pay” or “transfer” to your selected beneficiaries on death. Assets which are transferred this way avoid the probate process completely.

2 – Establish Joint Real Property Ownership With Right of Survivorship Where It Makes Sense.

It often makes sense for married spouses to own real property jointly. Where the property will pass to the other spouse when a spouse dies, that “right of survivorship” will keep the transfer out of probate court. In North Carolina, both ownership as” joint tenancy with the right of survivorship” and “tenancy by the entirety” provide real property survivorship rights to married couples.

3 – Donate or Gift Away Property

Property that you gift away before your death does not go through probate court. In some circumstances, it may make sense to give away some assets to charity, or to selected beneficiaries, to get these funds out of your estate before you die. But if your estate is large enough, you should consult an attorney about the potential tax consequences of such gifts.

4 – Utilize the Small Estates Laws

If the size of a deceased person’s estate is small enough, North Carolina provides expedited procedures for settling the estate, greatly shortening and simplifying the probate process.

5 – Create a Revocable Living Trust, Where Appropriate

If your estate size is large enough, or for other reasons, it may make sense to establish a revocable living trust. Assets which are properly added to a trust normally escape the probate process after the death of the grantor. In addition, assets placed in trust typically stay private, away from the public eye.

REFERENCES:

James Salter, 5 Smart Estate-Planning Steps to Avoid Probate, Nerdwallet (Feb.10, 2016), https://www.nerdwallet.com/blog/finance/5-smart-estate-planning-steps-to-avoid-probate/.

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