I am often asked to explain the difference between probate and trust administration and why I generally prefer trust administrations.
Probate is a legal process that takes place after someone dies. It includes identifying and inventorying the deceased person’s property, paying debts and taxes, and distributing the remaining property to the decedent’s heirs, or (if there is one) as the Will directs. In Oregon, probates are triggered if an estate is worth over $200,000 in real property, or $75,000 in personal property. Chances are, if you own a home a probate will be required at your death.
Probates can add unnecessary cost and time. First, there are court costs, which are based on the value of the estate (the larger the estate, the higher the cost). With court oversight comes higher attorney fees, since petitions must be drafted, served, and filed before many actions can take place. Probates also slow things down: it can take 6-8 weeks to go through the process of drafting and filing a motion to receiving the signed judgment. This can be frustrating for all involved and more expensive than necessary. All fees and costs are paid from estate property, which would otherwise go to those receiving the decedent’s property.
Trusts, on the other hand, can avoid the need for probate. A Trust is a legal arrangement in which a Settlor transfers property to the Trustee, who holds legal title to the property for a Beneficiary. In a revocable living Trust, the Settlor, Trustee, and Beneficiary are initially the same person, so we are in effect, transferring our property to ourselves to hold and manage for our own benefit. As long as the Settlor is alive and has the legal capacity to make changes, they may amend the Trust as often as they like. At the Settlor’s death, the Trust becomes irrevocable and cannot be changed.
Because legal title to the property is held by the Trust, rather than by the individual, there are no assets in the person’s name at their death and no probate is triggered. This is a subtle, but very important, technicality in avoiding probate. When the Settlor dies, many of the same duties as in a probate are required, such as paying off expenses, debts, and taxes, liquidating assets and distributing the Trust to the remainder beneficiaries. However, because Trust administrations happen outside of court, they tend to be simpler, faster and less expensive than probates.
The Trust only controls what it owns, so it is very important that title to the assets are changed correctly. Anything (other than retirement plans, annuities, and life insurance) remaining in the decedent’s individual could trigger a probate.
Having said all this, there are times a Will makes the most sense and working with a professional can help ensure you have the best plan for you. A well-crafted estate plan goes far in easing your loved ones stress and ensuring your estate is passed on to them in the most cost- and time-effective manner.