As a general rule, all property owned by a decedent at his/her time of death is part of the “probate estate.” This means that (unless some prior planning has occurred), in order to be legally transferred to a new owner, property must be administered through the court. This includes all of the following items:
- All property transferred by a valid Will (please note: simply having a Will does not avoid probate)
- All property not indicated in a Will
- All proceeds from accounts or insurance policies transferred to “the estate of” or to beneficiaries that have died prior to the decedent
- All types of property (real estate, bank accounts, personal tangible property, stock, investments, etc., etc.)
Timely planning can avoid probate. When we work with families and individuals, one common central goal is to avoid probate while creating a simplified and smooth process for transferring property upon death.
A trust is created when property of some sort (an account, a home, some personal property, any property) is transferred to an individual “in trust” for the benefit of some other individual, group of individuals or organization. A trust can hold title to very little property or millions of dollars of property. Trusts can be established during your life, at your death or after your death. Trusts can be established to benefit you, your family, your descendants, a social or religious organization or any myriad of individuals, companies or organizations. Put simply, a trust is a vehicle by which one person holds property for the benefit of another person and typically includes detailed specifications on how, when or for whom that property is to be used.
A Testamentary Trust is a trust created in a manner so as to come into existence only at the time of your death. The terms of a testamentary trust would typically be included in a will and the trust never exists while you are living. A testamentary trust requires probate for its creation.
A Testamentary Trust is often advisable if you are in any of the following circumstances:
(i) you have young or immature beneficiaries
(ii) you have older or incompetent beneficiaries
(iii) you have disabled beneficiaries
(iv) you want to maintain some control over “gifted” assets
A trust can be a wonderful tool to help set in place an estate plan that accomplishes a client’s goals. Situations, goals and life circumstances vary, so there really is no across-the-board answer as to whether a trust “makes sense” for a particular demographic of clients. Ultimately, putting in place a trust usually makes the best sense when a client wants to (i) avoid probate upon their death, and/or (ii) use assets, property and money for a specific purpose after their death. First, while there are some other ways to avoid probate, a trust generally does so in the simplest and most comprehensive fashion. Second, a trust is generally the only effective tool at carrying out plans or wishes that assets be used for a certain defined purpose after death. This can be particularly important when money will be needed to raise children or to fund education. However, the ability to control how assets are used is also tremendously important in circumstances where the (now deceased) creator of the trust wants to ensure that assets are not wasted away, wants to provide periodic payments for support, wants to delay all or some of the distributions and/or wants to provide for someone whose judgment or capacities may not be up to managing a large sum of money. In working with clients, I view a trust as a potential tool to accomplish the goals and plans of my client. Sometimes, we do not recommend a trust because it is just not needed to accomplish those goals. However, in many instances, this tool becomes very important and is a critical part of setting in place a comprehensive, complete and meaningful estate plan.