When you die, your money goes to someone. That someone is either named in your will or decided by your state’s probate court. However, if you have a trust—a fiduciary arrangement in which your assets are held by another person (a trustee) for the benefit of your beneficiaries—you can avoid probate altogether. In this article, we’ll discuss how and why trusts avoid probate, why avoiding probate is such a hot topic, and how you can get help.
Probate is the legal process of transferring property after someone dies. It’s a court-supervised process in which the Executor or Administrator of your estate collects, manages, and distributes your assets according to the instructions in your will or trust document. If you didn’t leave any instructions, the courts will appoint a person to act in this capacity and guide asset distribution based on the state’s intestate succession laws.
Based on the definition alone, it may seem like the courts have it covered, so what’s the point of avoiding the process? Well, probate can be costly and lengthy for your heirs. California probate fees are some of the most expensive in the country. Probate fees for attorneys and executors are four percent of the first $100,000, three percent of the next $100,000, two percent of the next $800,000, and so on, slowly eating away at your estate. Ultimately, your loved ones could be left with significantly less to live on than you intended. Not to mention probate can take months to conclude. While grieving, your loved ones could be dragged back and forth into court to settle your estate.
The short answer is no. Not all assets are subject to probate in California. Some assets automatically avoid probate, including assets that were jointly owned or held in a trust and accounts with named beneficiaries like retirement accounts, life insurance, and payable upon death (POD) accounts.
A trust is a legal agreement between two or more parties (you and your beneficiaries) that establishes how assets will be managed by another party (the trustee). When you decide to place your assets in a trust, you are no longer the owner of those assets. You transfer ownership to the trust. Because of this, as long as the trust is set up correctly, there will be no need to go through the probate process. The trust assets pass to your designated beneficiaries automatically after your death, requiring no court intervention.
Trusts are designed to avoid probate, but it isn’t a guarantee. When trust documents aren’t properly set up or assets aren’t transferred correctly, probate will be necessary. Suppose you did set up the trust correctly. You filed all the right paperwork but acquired new assets that you forgot to include. In that case, these assets will need to pass through the probate process and be distributed according to your will. But we get it – the likelihood of you remembering to include every single asset or dollar in your trust is slim to none. Instead, you can set up a pour-over will that automatically moves “leftover” assets into your trust upon death.
There are many different types of trusts that may be beneficial to your estate plan. The two main types are revocable trusts and irrevocable trusts.
If you’re thinking about creating a trust in California, here are some other benefits to keep in mind:
As we’ve seen, a trust is an important estate planning tool. It can greatly benefit your loved ones in the event of your death or incapacity — but only if it’s set up correctly. To set up a trust in California, you will need to decide what type of trust is right for you, who will act as your trustee, who the trust will benefit, and which assets will go into it. An estate planning attorney can help you create your Declaration of Trust document, ensuring it is filed legally and correctly. Additionally, they can help you keep your documents updated over time and advise you on other documents that may meet your estate planning needs. If you’re considering creating a trust in California, look no further than the team at Santa Barbara Estate Planning & Elder Law. Contact our office today to book a free estate planning session.