Sponsored - To fully understand what probate is, you will also need to learn the terminology associated with it. Don’t be intimidated. This article will help you to understand probate, probate assets, non-probate assets, Wills, trusts, revocable trusts, and irrevocable trusts.
Probate is a court-supervised process that is required after the death of an individual who owns probate assets. A Will provides instructions for how probate assets should be distributed. If a deceased person doesn’t have a Will, probate assets will still be distributed through the probate process, but state law (and the Judge!) will decide who receives those assets and who will be responsible for managing the estate. The probate process generally takes a year or more to complete after death and requires the filing of a significant amount of paperwork with the Probate Court. This includes, but is not limited to, notifying state law beneficiaries (think next of kin), and filing the Will (if there is one), a probate application, an inventory of the deceased person’s assets, a general publication of notice to potential creditors, an accounting of estate transactions, and more. There will also be court fees which must be paid, and, depending on the circumstances, court hearings may be necessary to resolve various issues.
You may have noticed that we specified that the probate process is only required when there are probate assets to be distributed. This means that non-probate assets do not go through the probate process. By understanding the difference between probate and non-probate assets, we can develop a plan to convert what would normally be probate assets into non-probate assets. If this is done properly before death, probate can be avoided entirely.
A probate asset is any asset which is owned by the deceased person at their death which was not owned by a trust or jointly owned with a right of survivorship, and which did not have either a valid beneficiary designation, payable on death (“POD”) designation, or transfer on death (“TOD”) designation. Beneficiary designations will be found on retirement accounts, annuities, and insurance policies, while PODs will be found on deposit accounts and TODs are available for brokerage accounts and other non-retirement investments. A non-probate asset will be any asset which has one of these features. If a determination is made that even one probate asset exists in an individual’s name at death, probate will be necessary.
As mentioned above, assets which are owned by a trust are non-probate assets and are not subject to the probate process. For this reason, we often use trusts to convert probate assets into non-probate assets to avoid the probate process entirely. This becomes especially important for assets that are conveyed by title, like real estate and vehicles, which, without being owned by a trust, can be difficult to efficiently pass to one’s heirs without probate. It tends to be difficult to avoid probate on titled assets like real estate and vehicles because adding beneficiaries is generally not possible and adding a joint owner with a right of survivorship often leads to other undesirable results, such as giving away partial ownership (and therefore some control) in an asset before you intended to, possible gift tax issues, and potentially creating liability in a joint owner of property where none existed before, just to name a few. For these reasons and more, it often makes sense to use a trust in conjunction with a comprehensive estate plan as a tool to make it possible to effectively avoid probate on all assets.
Trusts can be either revocable or irrevocable. Revocable trusts can be changed (or revoked entirely) by the creator of the trust, known as the “Settlor” or “Grantor,” while irrevocable trusts cannot be changed or revoked by the Settlor. In addition to the Settlor, there are a couple more critical roles in each trust that must be filled. Upon creation of a trust, the Settlor appoints a Trustee who will be responsible for managing the trust. Additionally, the Settlor appoints one or more beneficiaries who will receive benefits from the trust as determined by the Settlor. Much like with a Will, the Settlor puts all their instructions in writing in what is known as the “Trust Document.” These instructions create binding rules that must be followed by the Trustee in managing the trust.
Trusts also allow Settlors to create ongoing rules, requirements, and stipulations which will dictate a beneficiaries’ access to trust assets. While the probate process ultimately results in a final outright distribution of assets to the intended recipients under the Will, trusts can exist for many years and can set forth numerous rules and requirements that the Trustee must follow during the term of the trust. The possibilities are practically endless, so Settlors are able customize their trusts in ways that align with their values and will be most beneficial for each beneficiary. For example, a Settlor may decide to hold funds in trust for a child he knows is irresponsible with money until that child reaches a certain age. Another Settlor who wants to promote higher education may decide to reward a grandchild with a $10,000 gift from the trust upon their completion of a degree program.
As we have learned, the probate process can be time-consuming and require a great deal of paperwork to complete. However, with a comprehensive estate plan that includes a thoughtful combination of trusts and asset titling, probate can be avoided completely. If you are interested in avoiding probate for the ones you love, reach out to a qualified estate planning attorney for a consultation. The attorneys at LawyerLisa can be reached for a consultation by calling 803-563-5163 or emailing info@LawyerLisa.com. The time to plan is now!
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Lisa Hostetler Brown
5175 Sunset Blvd. Ste#1 Lexington SC 29072
Serving the state of South Carolina
Firms past performance and experience does not guarantee future results.