Q: What is Probate and why does everyone want to avoid it?
After a person dies, ownership (the legal title) of his or her property, assets and personal effects must be passed on (legally transferred) to the beneficiaries (heirs) listed in the Will. If there is no Will, the persons receiving assets are designated by State law. "Probate" is the legal name given to this process.
First, the Last Will and Testament must be verified as the valid, final dispositive statement of the decedent (the official record of the deceased person's final wishes). The Will generally names the person or institution appointed to administer (manage) the probate estate process. When there is no valid Will, State law governs who receives the assets of the deceased.
In New York, the probate court is called the Surrogate Court. There is a different Surrogate Court in each county. The Last Will and Testament of the Decedent must be probated in the county where the Decedent was domiciled.
The Probate process can be expensive, time-consuming, and may be open to the public. The length of time needed to complete probate and the costs associated with probate of an estate will depend on the size and complexity of the estate.
Q: What is a Revocable Living Trust?
With a trust-based estate plan, your Revocable Living Trust will cover the four important points listed above, but the person in charge of settling your final affairs after you die will be called your Administrative or Successor Trustee instead of your Personal Representative or Executor.
Even with a Revocable Living Trust, however, you will still need to have a Last Will and Testament. This is because you will need to fund your assets into your trust before you die so that your trust agreement can govern what will happen to the property titled in the name of the trust after you die. But if you fail to fund even one asset into your trust, then your Last Will and Testament will be necessary to "catch" the unfunded property and transfer it into your trust after you die. In this case the Last Will and Testament will simply function as a "Pour Over Will," meaning that it will provide for the unfunded asset(s) to pour over into your trust after your death through the probate process.
A Pour Over Will only needs to cover two important points: (1) who will be in charge of your assets that were not funded into your trust as the Personal Representative/Executor, and (2) what powers your Personal Representative/Executor will have. Note that if you have minor children, then your Pour Over Will may also cover a third important point: the Guardian for your minor children until they become adults.
Q: What are the advantages of having a Revocable Living Trust?
One of the first benefits of a Revocable Living Trust is that it avoids probate. With a valid Last Will and Testament, your estate will go through probate, the court proceedings through which your assets are distributed according to your wishes by the executor. A Revocable Living Trust, on the other hand, does not go through probate, which often means a faster distribution of assets to your heirs. Often, the distribution of assets from the Revocable Living Trust can completed within weeks as opposed to the distribution of assets in a probate proceeding which may take months or even years to complete.
Remember, this really all depends on your financial situation. At first, drafting a living trust will likely cost more than drafting a will as it is a more complex legal document. Moreover, you must also transfer your assets such as bank accounts, stocks, bonds, and certificates to the trust through separate paperwork; simply writing up a living trust does not actually "fund the trust."
While a Last Will and Testament will cost less to draft, a Revocable Living Trust can save your estate money at the time of your death as the distribution of assets in the trust will not go through probate.
As far as savings of income and estate taxes, there is often no substantial difference between living trusts and wills, although living trusts may provide savings for married couples in the form of joint living trusts.
A Revocable Living Trust is written so that your trustee can automatically take care of your affairs if you become ill or incapacitated. On the other hand, if you simply have a will without a durable power of attorney, the court will appoint someone to oversee your financial affairs who will have to report to the court for approval of expenses, sales of property, etc. If you draw up a durable power of attorney, including one for health care decisions, you can avoid a court-appointed conservator for your affairs.
With a Revocable Living Trust, however, your handpicked trustee can manage your affairs without court intervention, and since the trust is revocable, if you dispute your incapacity, you can retain control yourself.
A significant difference between a Last Will and Testament and a Revocable Living Trust is the privacy offered with a trust. A Revocable Living Trust is not made public, and upon your death, the estate will be distributed in private.
Q: Do I have to transfer all my assets to a Revocable Living Trust?
No, you can transfer all or part of yours assets into the Revocable Living Trust. However, certain assets with beneficiary designations such as a life insurance policy or annuity payable directly to a named beneficiary do not have to be transferred into the Revocable Living Trust. Other assets such as IRAs, Keoghs, 401(k) accounts and most other retirement accounts transfer automatically to the persons named as beneficiaries without the need for probate.
Death account (POD for short) or an "in trust for" account (a "Totten Trust") with a named beneficiary do not have to be transferred into the Revocable Living Trust.
It is important, however, to seek the counsel of an experienced estate planning attorney who can advise on and assist with transferring necessary assets to your trust.
Q: Can the bank accelerate my mortgage if I transfer my deed into my Revocable Living Trust?
Maybe. The Garn–St. Germain Depository Institutions Act of 1982 prohibits financial institutions from calling or accelerating your loan when you transfer property to your Revocable Living Trust as long as you continue to live in that home. The only exception to the Act, is that federal laws do not provide for such protection for residential real estate with more than five dwelling units.