Using Revocable Living Trusts to Avoid Probate
By Jeramie Fortenberry
The probate process can be time-consuming and expensive. Although is generally impossible to avoid probate once the decedent has died, probate costs can generally be avoided with proper estate planning prior to death.
One of the most popular and flexible probate avoidance devises is a living trust. A living trust is a legal entity that is created during your life to hold title to your assets. Because you retain full control over the trust, including the right to revoke the trust and "undo" the transfers of assets, living trusts are commonly known as revocable trusts.
Living trusts can be set up by a qualified estate planning attorney. The creator of a living trust, called a grantor, re-titles all of his or her assets to the name of the trustee of the revocable trust, who is usually also the grantor. During the grantor's life, the grantor retains total control over the trust assets and can change the provisions or revoke the trust at any time. As long as the grantor serves as the trustee, all income from the trust assets is taxed to the grantor as though the trust did not exist. When the grantor dies, there is no need to probate his will because he does not legally own any assets – they have all been transferred to the living trust! Instead, the successor trustee takes control of the living trust and administers it as directed by the grantor-decedent.
Living trusts are the primary tool estate planners use to avoid probate costs. Living trusts offer the following advantages over wills:
• Privacy. Wills are matters of public record. When your will is admitted to probate in Mississippi, it is filed with the courthouse and can be viewed by anyone. The same is true of all inventories of your assets and other probate matters that are filed in connection with the Mississippi probate proceeding. Because probate of a living trust is not required, its contents generally remain private. Although a short certificate of trust may need to be filed with the land records, the substantive contents of your living trust are hidden from the public eye.
• Cost Savings. The expenses that are saved by avoiding Mississippi probate through the use of a living trust can help you transfer your estate at a lower overall cost, leaving more for your beneficiaries. For example, if your estate needs to sell a parcel of land after your death, it must petition the court (and pay the attorney probate fees) in order to do so. If instead the property is held in a revocable trust, the property can be sold without the courts supervision. These savings can drastically reduce the overall transfer costs. This can be especially beneficial if your own property in a state other than Mississippi, since out-of-state property usually requires an additional probate proceeding.
• Continuity of Management. At your death (or earlier, in the event of your incapacity), the living trust specifies how your estate is to be administered. Because assets are titled in the name of the living trust prior to your death or incapacity, there is no interruption in the management of your assets when your trustee takes over. The disability planning feature allows living trusts to serve as a substitute for a conservatorship over your estate or durable power of attorney.
• Unification of Estate Plan. A living trust consolidates your estate plan in one primary instrument. This avoids the need for jointly-titled assets and beneficiary designations (although a simple pour-over will is required in conjunction with the living trust, as described below).
• Stability of Estate Plan. Because the probate laws of each state are different, a will that is validly executed in one state may be invalid in another. This is not an issue for living trusts since living trusts do not have to comply with testamentary formalities. Because living trusts are separate legal entities, there is generally no need to change your living trust if you move to another state prior to your death.
• Security of Estate Plan. Living trusts do not need to comply with testamentary requirements and formalities, such as specified numbers of witnesses and attestation clauses. This makes living trusts more difficult (and less likely to be) challenged in probate court after your death.
Despite these advantages, there are a few concerns to consider in setting up a living trust. However, these concerns can usually be addressed and are often outweighed by the benefits of a living trust. One such concern is the increased up-front cost associated with living trusts. Living trusts are more difficult for an estate planning attorney to draft and funding the trust (titling the assets in the name of the trust) requires greater effort. However, these additional costs are usually more than offset by the probate savings. For example, re-titling a parcel of land in the name of a living trust prior to your death costs the same as it would to re-title the same land in the name of your heirs after your death. The difference is that the costs are incurred prior to your death rather than after. However, to re-title the property after your death, a probate proceeding may be involved. This means that, in addition to the normal costs (such as preparing a deed or performing a title search), you must also pay probate costs associated with court approval. If probate is avoided, the living trust will result in a savings of the fees incurred in connection with court approval. The increased up-front cost also provides the benefit of allowing any title errors to be addressed before they cause significant problems and while they can be easily addressed.
Although there are many reasons for choosing a living trust, one of the most compelling is the avoidance of probate costs. However, if you are not careful, probate may still be necessary if you do not transfer all of your property into the trust. This risk can be minimized by making a thorough inventory of all of your assets and being careful to execute each document required to re-title the assets. In conjunction with your living trust, you should always have a will in place that "pours over" any assets that you neglected to transfer into the living trust.
One common misconception (and fraudulent representation) about living trusts is that they allow you to save taxes. There is nothing inherent in a will or a living trust that makes one more preferable for tax reasons than the other. Both a will and a living trust can be structured to save estate taxes.
About the Author
Mississippi Probate Attorney - Mississippi lawyer specializing in probate, wills, trusts, and estate planning. Visit http://www.Mississippi-Probate.com to learn more about avoiding Mississippi probate.
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