Using a Trust to Avoid Probate

Should I transfer my assets to my heirs before I pass away so there will be no probate administration when I do pass away?  I get this question all of the time.


It is definitely possible to do this but there are several issues to consider.  Generally speaking, this approach is not high on my list.  I prefer to use a living trust.  There are several advantages of a living trust.  Let’s take a look at a few of the advantages.

Advantage # 1.  What is in the living trust will transfer to your heirs AND avoid probate.  The trustee of your living trust will identify the assets that are in the trust and follow the distribution terms of the trust as you have stated.  You can create some wild and crazy distribution schemes to transfer your assets to your heirs.  Believe me, I have seen some extreme distribution instructions.


Advantage # 2.  You retain control over the assets in your living trust during your lifetime allowing the assets to continue to provide support and benefits to you throughout your life.  Once you give the asset away, it is gone and you have no right to demand or expect any future aid from the asset.


Advantage # 3.  A living trust is “revocable”.  This means if you want to do away with the living trust and return the assets in the living trust to your personal use, you can do so at any time.  Another powerful provision of a living trust is that you can change any part of the trust at any time.  This allows you take into account births, deaths, marriages, divorces, and even just changing your mind at any time after the trust is established.  Life is constantly changing and a living trust makes it easy to deal with and keep pace with those changes.


Advantage # 4.  Settling an estate that has utilized the benefits of a living trust can be done in a relatively short period of time.  To settle an estate that has to go through probate can frequently take a year or more to finally settle the estate.  In a rare and extreme case, I watched the estate of a parent of a certified financial planner get settled in 4 hours.  Everything had been done so well that the family managed to get everything taken care of in one afternoon.


Advantage # 5.  My experience has been that attorney fees for drafting a revocable living trust will be less than the cost of probate.  This should be pretty clear when you consider that a probate estate will often take many months and a lot of time to settle.  There will often be many filings with the probate court and numerous appearances before the probate judge getting the judge’s permission and approval for the administration procedures.


Advantage # 6.  There are income tax advantages to the heirs who inherit assets following death compared to the heirs who are being given the assets while the donor is still living.  Using a living trust protects this advantage for the heir.


There are many other advantages to setting up a revocable living trust.  These are just of few of the highlights that I find very attractive and favor using a revocable living trust.


However, I also give the following warning about using a living trust.  A living trust uses a trustee to carry out the terms and its directives.  The authority of the trustee is powerful and there is often very little recourse that the beneficiaries have if there is a disagreement with the actions of the trustee.  So, where the family is in harmony and everybody gets along and the likelihood that there will be no problems and disagreements, take advantage of a living trust.  However, if the heirs are in disagreement and feuding and nobody can get along, forget using a living trust.  Let the family deal with the time delay and expense of estate probate administration and who better to oversee the distribution of your assets than the probate court and probate court judge.


Remember, if you start out with a living trust and the family is getting along but then takes a turn to the worse and disagreements arise, you can always terminate the trust.

Posted in: Retirement and Estate Planning

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