What is Probate?
Living Trusts and Probate Avoidance
Although living trusts have been around for centuries, only recently have they achieved a high degree of popularity among the general public. The reason for this surge in popularity is living trusts avoid probate with respect to those assets that are transferred into the living trust before death. In other words, living trusts avoid the court procedure otherwise required to transfer assets to a person’s beneficiaries at death. Even though no court procedure is involved, that does not mean there is nothing to do. The living trust makes administration easier, but it does not do away with administration altogether. For example, assets still have to be collected and managed pending distribution to the beneficiaries, appraisals of assets have to be made, debts and taxes have to be paid, tax returns may be required (living trusts do not avoid estate taxes, as some people have been led to believe), and legal documents must be prepared in connection with the distribution of the trust property to the beneficiaries. These activities are very similar to a probate. The major difference is that, with a living trust, everything is handled privately, without court supervision, which makes for (in most cases) a faster, less expensive administration process.
There is also a popular misconception that the existence of a living trust avoids all possibility of court involvement. This is true (in part) only if all of the Trustmaker’s assets were properly funded into the living trust. By California law should assets held outside the trust exceed $150,000 in gross value, a probate will be required for those assets in order for your successor Trustee to collect those assets and add them to the trust for distribution purposes. This is why you execute a will when you have a living trust. The beneficiary of your will is the trustee of your trust just in case some assets were not properly titled at your date of death.
It may come as a surprise to you, but there are costs associated with post death administration of a living trust. Expenses include legal fees, accounting fees, asset transfer fees, and a Trustee fees for you successor should he or she decide to accept it. The other beneficiaries of the Trust, if any, will also need to understand that the process may take longer than they anticipated. However, in comparison to probate, these delays and costs are substantially reduced, often resulting in time savings of months and costs savings of 50 to 90 percent.