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How Does A Trust Avoid Probate Whereas A Will Does Not?

A trust avoids probate because the title to the asset is held in the name of a trustee of the trust rather than in the decedent’s name. Subject to the $150,000 exception referenced below, any asset that is owned solely by an individual in his or her own name at death will need to be probated because the title designation does not determine to whom it passes. A trust directs to whom it’s assets pass and establishes legal authority in the trustee to make those transfers so there is no court intervention required. It is the trustee’s duty to pass the trust assets according to the terms of the trust and only in the event of a contest over the trust does the superior court get involved.

Is There a Minimum Amount of Assets Required For a Trust?

The assets that require a trust are those that do not otherwise have a beneficiary designation on them. For instance, an IRA account at an investment firm or a bank will typically have a designated beneficiary who will receive the IRA when the owner dies. That type of asset doesn’t have to be probated. Life insurance is the same, that is, it typically has a beneficiary designation and the life insurance company is under a duty to pay the proceeds to the designated beneficiary so no probate is required. Bank accounts that have “pay-on-death” designations (meaning somebody has been designated as the owner to take over when the person owning the account dies) do not need to be probated because they have a beneficiary designation. In addition, many people will have 401k plans or pension plans that have beneficiary designations.

Any other type of asset, (for example, real estate, bank accounts and savings and investment accounts that are titled solely in the name of the owner) do require probate if they are not otherwise held in a trust. Most people’s estates consist of a mix of assets; and most people will own real estate, either a personal residence or in some instances, rental property or have savings accounts in their own name and maybe stock accounts with no beneficiary designation. People may also own one or more retirement plans and possibly life insurance having beneficiary designations and thus not requiring probate.

Who Are the Parties Involved in A Trust and What are Their Roles?

In a typical trust plan for a married couple, the husband and wife are the creators of the trust (what we call the trustors). They are typically also the co-trustees of the trust, meaning they jointly manage the assets on their own behalves while they are still able to do so, and they are beneficiaries of the trust (the people for whose benefit the trust is being managed and administered). It is not always the case that the husband and wife occupy all three roles. Sometimes the husband and wife will appoint a third party as trustee if, for instance, they do not want to deal with the burdens of managing and investing their assets or if they are elderly and need third party assistance.

If we are setting up a trust for the sole benefit of a third party such as a child or a grandchild, we will typically make that trust irrevocable so that it can receive gifts from the husband and wife. Such gifted assets are excluded from the husband and wife’s estate for federal estate tax purposes. It is very often the case that the person who creates the trust for a child acts as the trustee as well so they can manage the assets. Typically, only in the event that they become incapacitated do they have a third party step in and act as trustee.

Can Someone Be Both the Trustee and the Beneficiary?

Yes, that is very common. As stated above, it is typical for the husband and wife to be the creators of the trust, the trustees and the beneficiaries. It means they are essentially entering into a contract with themselves to hold these assets in a trust capacity but they are playing three different and distinct legal roles. Nonetheless, even though the same parties are involved in all three capacities, the law considers that to be a validly created trust and will enforce its terms.

For more information on How Trusts Avoid Probate, a free initial consultation is your next best step. Get the information and legal answers you’re seeking by calling (916) 635-0302 today.

California’s Estate Planning Essentials