Probate is expensive, time consuming and part of the public record. Learn more here, including how to avoid it.
Living Trust: Avoid Probate
Related Reading: Inheritance loans, real estate investing, executors, avoiding probate and alternatives.
We all know the necessity of a will so our families will handle our assets according to our final wishes after we die. But what if you're alive and become incapacitated? A will cannot go into effect, but a living trust can.
You, the "grantor," usually act as your own trustee until the time comes for your successor trustee to take over. That can be another person, a bank or a trust company.
With only a will, all assets (unless there is a survivor of jointly-owned property) must go through probate court. A judge determines if any creditors have legitimate claims against the estate. This can drag on for six months to two years.
In Probate, witnesses who signed the will must testify that the person was of sound mind at the time he created the will. Avoid the need for relocating witnesses by having them sign the original document in front of a notary.
Avoid Probate - A Will vs. Living Revocable Trust (LRT)
A living revocable trust (LRT) allows a person to avoid Probate upon his death, but also allows his successor to take over if he should become incapacitated. He is "trusting" someone to take care of this for him, and he has left everything in the trust to beneficiaries so the court does not need to do it for him. All property in a living trust is exempt from Probate.
A Trust is Private
With a will, the assets may be "frozen" while the court disburses everything according to the testator's wishes. That is all made public and feuding beneficiaries can drag out the process interminably. Distributing assets for an LRT is a private affair.
If assets are put into a revocable trust, the grantor can make changes at any time before his death. But he must add new properties, cars, stocks, and bank accounts to the trust as he acquires them. Since he can change the trust at any time, he will not gain tax advantages.
A trust has an advantage over a will if the beneficiaries are irresponsible or are minor children. A trust can designate who gets what and when. It can control the spending of the children's guardian, if necessary.
A simple will can cost about $200 to create; a trust can run $2000 or more because you are paying many of the costs up front, and you are avoiding probate. Probate can charge a percentage of the value of the assets, plus attorney fees and other costs, which can be several thousand dollars.
Since a trust must be updated constantly with new acquisitions, keep a valid will on hand to designate assets that may not have gone into the trust. Those things will still be probated, but your beneficiaries will have access to funds to pay the inevitable costs.