This week's topic:

Probate vs. Living Trusts

  • I am often asked: "What's probate?" The short answer is that probate is a legal procedure to transfer property from a deceased person to his or her heirs. The primary factor in determining whether a deceased person's estate must be probated is the amount and type of property that the deceased person owned. California, for example, has what's called summary probate, in which estates up to $100,000 can be transferred without a full-blown legal action. If mom dies with $95,000 in a C.D., and has no other major assets, her heirs can obtain the money by use of an affidavit procedure. On the other hand, if mom's estate consists of an unimproved lot in Pacoima worth $105,000, a full probate will be required. The advantage of summary probate is that the amount of time involved is only a few weeks, versus nine to twelve months for a full probate.
  • At a minimum I advise my clients to have a will prepared so that their wishes for the disposition of their estates is clear. Without a will, the state decides who inherits. But I also advise many of my clients to have a living trust instead of a simple will. The benefit of a trust is that probate can be avoided - and there may be some tax savings. Setting up a living trust is a little like starting your own company. You (and your spouse) have an attorney draw up a document that declares that you are transferring all of your assets to your trust - and that you are going to be the managers ("trustees") of the trust. In addition, the trust declaration usually says that all of the assets in the trust will be used for your benefit. On the death of one of the parties, the trust generally stays intact. But on the death of the second person, the trust assets automatically transfer to the beneficiaries - subject only to some paperwork. No court proceedings are necessary. The trust usually names a successor trustee - manager - to oversee the distribution of the assets.
  • The time to settle a trust is typically a few weeks to a couple of months. But the real savings come in terms of cost: attorney fees and executor's fees for a "small" estate of only $200,000 can run $14,000 or more.
  • Since everyone's estate is a little different from their friends and relatives, it's important to review your situation with an attorney.

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