Ask the Probate Judge—Two Way to Avoid Probate
Rudd, appeared January 16, 2003, Albuquerque Journal, Business Outlook
Reprinted with permission
Editor's note: This column may not be quoted or reproduced in whole or part without express written permission of the author.
Q: A friend of ours had a trust prepared. He is serving as both trustor and trustee. He says that a living trust avoids probate if 100% of the estate is transferred to the trustee. Is that true? We have prepared a transfer on death deed for our home and named "payable on death" beneficiaries for all of our CDs and bank accounts. Can we avoid probate without transferring our assets to a trustee? E.L., Albuquerque
I like your question because it illustrates two different methods of avoiding a court probate procedure.
One method is to create a revocable living trust, a notarized legal document, during your lifetime. Your friend chose this method.
Once a trustor creates a trust, to effectively avoid probate, the trustor must fund the trust. This means the trustor must transfer all assets into the name of the trustee of the trust. Only assets that have been transferred into the trust will pass automatically to the trust's beneficiaries when the trustor dies. If legal title to all assets is held in the name of the trustee, no probate should be necessary.
Transferring property into a trust does not happen overnight. Sometimes completing all the transfers takes months. Some people who create trusts want their attorneys to handle all of the transfers. Others may wish to handle the transfers themselves. Most attorneys will insist on at least preparing deeds to real property to make sure the title is changed correctly.
A typical living trust allows the trustor to also serve as trustee. A successor trustee can take over if the first trustee is incapacitated, is busy, or has died. The trustee or successor trustee has the legal authority and power to distribute the assets of the deceased trustor according to the wishes of the trustor expressed by the terms of the trust. The beneficiaries named in the trust receive the trust assets either immediately upon the trustor's death or at a later time specified in the trust document.
The second method, as I have discussed in prior columns, is to title your assets so that they pass automatically to named beneficiaries. It appears that you have chosen the second path. By creating and recording a "transfer on death" deed, you should avoid a probate on your house. "Payable on death" assets pass automatically to the named beneficiaries, assuming those beneficiaries survive you. If all of your assets have beneficiary designations, you should avoid probate without creating a living trust.
People who have properly titled their assets often do not need a revocable living trust. By using beneficiary accounts, they have chosen a cheaper and quicker way to avoid probate.
© 2003, Merri Rudd & Albuquerque Journal, All Rights Reserved