Having a living trust is a common strategy to avoid probate, but it doesn’t guarantee that probate will be completely avoided. There are some reasons why probate might still be necessary even with a living trust.
Improperly Funded Trust
One of the most common reasons a living trust may not avoid probate is if it is not properly funded. This means that all assets intended to be governed by the trust must be legally transferred into the trust. If assets are not transferred, or retitled in the name of the trust, they remain part of the individual’s personal estate and are subject to the probate process. For a living trust to be effective in avoiding probate, assets must be properly transferred into the trust. Probate can be time-consuming, costly, and public, which are often the very issues a trust is set up to avoid.
Failure To Update Your Trust
Changes in family dynamics, such as births, deaths, marriages, or divorces, can render the trust’s original terms inappropriate or inadequate. This could result in assets being distributed in a manner contrary to the grantor’s current wishes. If a trust is not kept up to date with changes in assets, beneficiaries, or legal requirements, some assets may end up going through probate. If new assets are acquired after the trust is created and are not properly titled in the name of the trust, they may not be governed by the terms of the trust. As a result, these assets could be subject to probate upon the grantor’s death.
Having Real Estate in Multiple States
If you own real estate in a state other than where your living trust was established, you might have to go through ancillary probate in the other state(s), unless that real estate is specifically included in the trust. To include real estate in a trust, the property’s title must be legally transferred into the trust. This involves preparing and recording a new deed with the appropriate registry of deeds and transferring the title from the individual’s name to the trust’s name. Once the real estate is titled in the name of the trust, it is no longer part of the individual’s personal estate at death. Consequently, it does not go through the probate process. Instead, it is distributed or managed according to the terms of the trust. This bypasses the often lengthy, public, and costly probate process.
Debts and Taxes
The trust may need to be presented in probate court for the resolution of outstanding debts or taxes. If the decedent (the person who created the trust) had outstanding debts at the time of their death, creditors might have claims against the estate. While assets held in a trust are generally not subject to probate, creditors may still have a right to seek payment from these assets. If the trust does not have clear provisions for the payment of debts, or if there is a dispute about the debts, the matter may need to be resolved in probate court. If there are estate taxes owed, the trust may need to be involved in probate proceedings to address these tax liabilities. This is particularly relevant if the estate exceeds the federal estate tax exemption limit. The executor of the estate (if different from the trustee) may need to coordinate with the trustee to ensure that tax liabilities are properly addressed.
Conclusion
It is crucial to have regular reviews and updates of your trust and your overall estate plan, considering changes in assets, family circumstances, and laws. Ensuring your trust is up to date is crucial in achieving the goal of probate avoidance. To consult with a legal expert in estate planning, contact Legacy Counsellors today at info@legacycounsellors.com or (413) 527-0517.