Probate is the legal process that oversees what happens to a person’s estate (e.g. property, money, etc.) after death. Probate courts administer, inventory, tax and distribute a person’s assets, which is usually expensive and time consuming. Many people want to avoid probate for this reason.
While there are a growing number of ways to transfer property outside of probate, a living trust is a great tool, with many advantages.
People typically equate having a trust with wanting to avoid taxes or having a lot of wealth but there is much more to using a trust. Trusts do function like a Will in that it can operate to distribute assets to your heirs upon death. Most importantly trusts allow for ongoing management of assets and controlled distributions of monies to beneficiaries who may be minors, incapacitated, subject to the claims of creditors or otherwise simply not in the best position to receive an inheritance of some kind without come oversight or checks and balances.
A trust is recognized as a separate “legal person”and is governed largely by contract law (though many states now have trust codes). A trust can usually be administered with no need for court-supervision or administration.
Some misconceptions about trusts are that they save or avoid taxes, and they do to some degree, however a trust in and of itself does not necessarily save or avoid taxes, it is how the trust is used, funded and managed that help save or avoid taxes.
A trust is usually funded with assets by the creator of the trust (“Settlor” or “Grantor”), though anyone can contribute to the funding a trust. And you don’t have to hire a third party or professional trustee to manage your trust, you can do it yourself! Probably the most commonly drafted trust is a Grantor-Revocable Living Trust (which means that the grantor of the trust remains and is treated as the owner of the trust assets).
On the death or incapacity of the grantor, a successor trustee can be a spouse, family member or friend. Occasionally it is necessary or a good idea to bring in a professional trustee. Or use a professional trustee as a co-trustee for specialized advice.
A trust is an excellent tool for managing and distributing assets in an orderly, timely and trustworthy manner.
Feel free to contact me with any questions on this or other legal topics.
Lisa J. Peterson is an attorney and mediator in Ann Arbor, MI.