A revocable living trust is a method of avoiding the probate process. If assets are owned by a trust, no court is involved in the transfer of assets upon death. Therefore, no newspaper notices or letters to heirs are required, no records become public, and no statutory waiting periods apply. It is still necessary to determine what assets exist, to pay creditors, to file required tax returns, and to distribute assets to beneficiaries, but avoiding court proceedings and requirements simplifies and expedites the process.

Probate only arises when the legal owner of property dies, leaving no joint owner or beneficiary. In order for a living trust to avoid probate, ownership of assets is transferred to the trustees (managers) of the trust. Instead of owning property as George and Gladys Clark, the name on the deed, account, security, or other asset is changed to "George Clark or Gladys Clark, trustee(s) of the CLARK TRUST dated…” 

The trustees of the trust own the assets. George and Gladys, as trustees of the trust, have total control over all property just as they did before. George or Gladys could spend money, mortgage, sell or give away assets, or do anything they would do if the trust did not exist. Since the trust owns the property and it is physically impossible for the trust to die, the owner of the assets never dies and probate is never required. If either George or Gladys passes away, probate is avoided and the trust remains as was before. In most cases, the survivor, either George or Gladys, still has complete control over the assets. The only exception to the surviving spouse receiving total control of all property is if those setting up the trust choose to have someone else manage it or if federal estate tax planning is included in the estate plan.

Upon the death of the survivor, no probate is required since the trust is still the legal owner of the property. According to the provisions of the trust agreement, when both George and Gladys are deceased, the party they named as successor trustee will have the power to distribute the assets of the trust according to the terms provided in the trust. The successor trustee is typically the same person or institution who would be named as personal representative in a will. This should be someone who is capable of completing paperwork, who is responsible with money, and who can get along with the named beneficiaries. The successor trustee can be one of the named beneficiaries, any other individual, or a trust company. If, during lifetime, the original owners of the property decide that they prefer to have someone else manage assets, the role of primary trustee of their trust can be given to anyone they choose. If both spouses agree that only one spouse should have management rights on some or all assets, the trust agreement can provide for management by one spouse solely.

A living trust works well for either married or single people. Joint trusts may be used in situations where joint tenancy would typically be used, but where probate avoidance on both estates is desired. In cases where married couples choose to keep their assets separate, such as when spouses have children from previous marriages or in some cases to implement federal estate tax planning, a separate living trust may be executed by each spouse, with the plan of distribution of each spouse outlined in that spouse's trust.

For single people, the living trust is especially advantageous since the alternative of joint tenancy is usually not practical. If George's mother, Madeline Clark, chose to avoid probate with a living trust, she would execute a trust agreement and change the name on her assets to "Madeline Clark, trustee of the Clark Trust dated ______________. “

The date that the trust was signed is included in the name of the trust to insure that assets are credited to the correct trust.

For purposes of illustration, let's assume that, at this time, Madeline Clark has only one asset-an apartment building worth $200,000. She owns this property in her sole name. Madeline has a will which leaves everything to her son, George. Upon Madeline's death, George takes the will to his attorney and asks what needs to be done. George's attorney explains that various papers must be filed with the probate court so the court can authorize George to manage the property during the pendency of the probate proceeding. Newspaper notices must be published and a waiting period must pass. After the waiting period passes, required tax returns must be filed and taxes paid, and an accounting of activity which occurred since the date of death must be completed. Administrative fees for this process must be paid although there may be no cash available in the estate.

George stares at the attorney and asks, "What do I get for this expense and time delay?" The attorney responds, "You get the court's order saying that the property is yours." George stammers, "But the property is mine. Mom wanted it to be mine, her will says it's mine, and no one is disputing the fact that it's mine."

George leaves the attorney's office and does nothing. He wonders why anyone would spend money on probate. Then, three years later, George receives an offer from a buyer who wants to purchase the building. The offer is for $300,000, but is contingent upon a quick sale. George is tired of managing the building, could use the cash, and knows that several repairs will be needed soon.

Much to George's dismay, he discovers that he cannot sell the property. The deed to the building is in Madeline's name, and she is in no position to sign a deed transferring the property to the buyer. George returns to the attorney and asks how to clear title so the sale can be consummated. The answer: Probate must be initiated to get George nominated as personal representative with the authority to transfer the property. Initiation of probate procedures and issuance of a document authorizing George to act as the estate representative may be expedited in order to clear title prior to the buyer's deadline. However, George's failure to get tax releases may constitute a cloud on title which could take several weeks to clear. In the meantime, George's buyer may be lost. If the sale doesn't go through and George keeps the property, if he ever wants to mortgage it the same title problem will arise. In order to clear title the probate process must be commenced, but substantial additional costs will now be included since tax returns and accounting of all expenses and income must incorporate the entire period of time since the date of Madeline's death. Tax penalties and interest may apply, income tax rates applicable to income earned may be higher than would have been required if returns Were filed promptly and planning was done, and time delays will increase administrative costs.

If Madeline decided, during lifetime, that she wanted to avoid probate on the apartment building, she could use various techniques.

First, she could transfer the property to George during lifetime. If she did this, Madeline would no longer have a legal right to income from the building, and even if George gave her the income from the building, the income would be taxable on George's 1040 and at George's income tax rate. George's creditors could reach the building, and, if George got a divorce, the building could affect the divorce settlement. Additionally, a great income tax advantage would be lost by gifting the property to George rather than letting him inherit it. Possible gift tax ramifications must also be considered before any gift is made. In addition to other considerations, Madeline must keep in mind that, if George predeceased her, the building would be probated through his estate if it had been put into his name.

A second technique which Madeline could use to avoid probate of the building would be to transfer the building to George and herself as joint tenants with right of survivorship. This form of ownership would eliminate probate of the property as long as either George or Madeline survived. However, the concerns outlined earlier regarding putting property in someone else's name such as tax, creditor, and management issues would apply to George's one-half ownership in the property. Whether Madeline changes the name on her deed to George's name solely or to George and Madeline as joint tenants, Madeline will need George's permission in order to mortgage or sell the building.

A third option to avoid probate of Madeline's estate would be execution of a living trust. In order to put the trust into effect, Madeline must sign a revocable living trust agreement, and must execute a deed which transfers the apartment from Madeline Clark to "Madeline Clark, trustee of the CLARK TRUST dated _____________________. “

George is named as successor trustee of the trust. Pursuant to the trust agreement, George has two duties. If Madeline becomes incompetent as evidenced by written affidavits from two physicians, George would step in and manage the trust assets-in this case the apartment building- for Madeline's benefit. This would eliminate the requirement of taking Madeline into court to prove that she is incompetent to manage her affairs. Upon Madeline's death, the legal owner of the property does not die, so no probate is required. The deed shows the trustee of the trust as owner of the apartment building. The trust agreement appoints George as successor trustee so that upon Madeline's death, George becomes the trustee of the trust and has legal authority to transfer the property to the beneficiaries named in the trust agreement. In this case, George is the beneficiary, so he issues a deed which transfers the property from the trustee of the Clark Trust to George Clark.

Tax returns must be filed, but no probate, statutory waiting periods or notice requirements apply, and time requirements and costs of administration are reduced.

If probate avoidance is desired but Madeline does not want to name George as successor trustee, a family friend or other individual or a trust company could be appointed as successor trustee.

A Living Trust is an estate planning document which:

	Avoids probate of the estate, so no court is involved.
	Eliminates the requirement of public notices.
	Keeps your plan of distribution private.
	Is acceptable in all states, so avoids probate of out-of-state property as well as property located in the state of residency. (A will requires probate in each state where real estate is owned and in the state where the decedent lived on the date of death.)
	Provides for management of assets by a family member or an institution (whichever you select) if you are unable to manage assets due to health problems and avoids proving incompetency in a court proceeding.
	Helps in organizing lists of assets for personal financial planning and helps beneficiaries in locating assets.
	Allows for optimum tax planning using federal and state income, gift, and estate tax law, yet requires NO extra tax returns or filings.
	Does not affect your ability to manage and control your own property and does NOT require management fees to be paid to anyone unless you wish to appoint an outside manager.

As with all estate planning, each person's individual situation and wishes must be analyzed before a decision is made as to the most effective planning technique. In considering living trusts or other probate avoidance and estate planning techniques, it is very important that a professional knowledgeable about living trusts be consulted. Just as an obstetrician may not be the one to do heart surgery, all attorneys are not familiar with the most effective methods of using living trusts.

Living trusts may not be for everyone, but for many, many people, a bit of extra planning now in establishing a living trust can save much time, money, and frustration for loved ones in the future. Estates take a lifetime to create, and can be protected with planning!