An interesting article I thought everyone may enjoy reading.
I am often asked to explain the difference between a probate and a trust administration and why I generally prefer the latter to the former.
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 as the Will directs. If there is no Will, State law will dictate how the assets are distributed.
In Oregon, a probate is 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. Typically, probates involve paperwork and court appearances by lawyers, resulting in filing fees and attorney fees for drafting the necessary petitions. These fees are paid from estate property, which would otherwise go to those receiving the decedent’s property. It can take 6-8 weeks from the time a decision is made to petition the court to take a particular action and receipt of the signed Order allowing that action, so probates can really slow things down. The result can be frustrating for all involved and more expensive than necessary.
Trusts, on the other hand, can avoid the need for a 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, the Trust must be administered, requiring many of the same duties as in a probate 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.
Work with a professional who specializes in estate planning so that you are confident the estate plan is comprehensive and fits your needs. 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.
I love it when I come across this most innovative ideas to help those living with Alzheimer’s! I hope you enjoy reading this article as much as I did!