A trust is a legal entity that survives the person who created it.
The basic purpose of creating a trust is to ensure easy distribution of assets to the beneficiaries without going through the often lengthy procedure known as probate. The assets covered or transferred in the name of a trust are easily passed on to the named beneficiaries after the death of the trust maker, but what about assets not held within the trust?
How are those handled?
The simple answer is any assets not held within the trust must go through probate, but this doesn’t have to be a huge ordeal.
If you have a trust, then you should also have pour-over Will that transfers any assets currently outside of the trust to the trust upon your death.
This one little instruction ensures that all your property is transferred to the trust for easy distribution. Yes, you’ll still have to deal with a probate process, but it should be shorter and less expensive than if you had several beneficiaries and/or no trust at all.
Now for the more complex answer:
What if you own real estate in various states and have failed to transfer some of it to a trust? If the answer is yes, your family members may have to face a primary probate hearing if the property that has not been transferred is located in the state of your residence, and ancillary probates in other states, where other non-transferred property is held.
- In case of accounts that are owned as joint tenants with the right of survivorship or tenants by the entirety with the spouse instead of a trust, no estate tax exemption is available.
- In case of joint assets that have a right of survivorship with one child instead of the name of a trust, all other children lose the right to such assets.
- In case of joint assets that have right of survivorship with a minor child instead of a trust at the time of one’s death, an adult will have to approach a court to gain control of the account by establishing guardianship or conservatorship.
Certain assets however, are not part of the probate process, even without being part of a trust. Life insurance policies for example, and any retirement plans you may have are considered “payable on death” accounts and are transferred to the named beneficiary within that document. No probate is necessary for these assets.
Successful estate planning involves transfer of all assets to a trust or the nomination of direct beneficiaries upon the asset owner’s death. This will help one avoid lengthy court procedures along with affording the advantage of various available tax exemptions.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.