How Living Trusts Avoid Probate

One of the most unfair and insensitive anomalies in the American legal system is the necessity for probate after a person passes on.

The court process known as probate was instigated to protect the creditors of a person who had passed on, and especially the U.S government. The objects of probate are as follows:
  • To prove the authenticity of the late person's last will and testament.
  • To appoint an officer of the court to handle the person's personal affairs.
  • To make an inventory of the late person's assets.
  • To pay the late person's outstanding debts and government taxes.
  • To irrevocably identify the late person's heirs.
  • To distribute the late person's net assets according to the will.
  • To distribute the late person's net assets according to state law, in the event that no will has ever been drawn up.

As you can probably imagine, probate is a long drawn out process and very costly too, a real windfall for members of the legal profession, who are undoubtedly the only ones who gain from it.

In today's legal system, there is no way of avoiding probate when a person passes away and they have an estate to distribute, except for the establishment of a living trust. However, in order for the establishment of a living trust to be cost effective, the trustors and the benefactors of estate have to be in a position to gain something for it. The reason being that the establishment and maintenance of a living trust can be fairly expensive. In some cases, the cost of establishing and maintaining a living trust may exceed the cost of probate. This can run to around 10% of the value of the estate after taxes have been paid.

The principal advantages of establishing a living trust is that the trustor will not be liable to pay estate duties after their passing. The tax savings can be very considerable. A living trust protects of up to $1,500,000 for a single person and $3,000,000 for a married couple. People who have accumulated estates of this magnitude would be very well advised to establish a living trust. Any form of living trust can also be revocable, in other words the trustors can decide to suspend the trust, or reduce its value or change the benefactors. This option can be dangerous, because any of the late person's assets which are not included in the living trust on their passing, may be subject to probate.

Establishing a living trust, on the outset may appear to be relatively simple. However before making any decisions, the potential trustors should consult with a qualified estate planner and discuss all the INS and out of the situation. What can be gained and what can be lost. By establishing a living trust, the trustors will avoid the long and frustrating process of probate. They may even be some that while they may not have a sufficiently large estate to be liable for estate duties that may decide to form a living trust in any case.

The reasons may be as follows:
  • By doing so they can avoid their estate going through probate. Any costs involved in running the trust will be paid in their lifetime, while probate costs are deducted from the estate.
  • By doing so they will ensure that their personal affairs and their asset value are not discussed in an open court. By establishing a living trust, they transfer their assets to the trust and details therein remain confidential.

To sum up, the trustor should review their current state of financial affairs, before making a final decision. They should not allow emotions to affect their thinking, and should focus instead on the practicalities of the situation and how best to protect their own interests and those of their loved ones.