Many people think probate is lengthy and expensive.
And, indeed it can be.
Many advocates of living trusts emphasize horror stories about probating a will. To be sure, there are some horror stories out there. There certainly have been many cases when probate turned into a disaster.
It is possible for property to be tied up in courts for years as people fight over who gets what assets. If this happens, probate will be lengthy. And, you can be sure that if probate is lengthy, it will certainly be costly, as the fees of the various professionals involved (lawyers, accountants, appraisers, bankers, etc) -- add up.
But – this usually does not happen. The truth is that probate is usually relatively fast and inexpensive because most estates are relatively small and uncomplicated.
The cost and delay of probate really depends on how big your estate is and what kind of assets are in it. The bigger, and more complicated the estate; the longer, and more expensive, probate is likely to be.
For example, probate court fees are normally relatively modest. However, some states have recently raised their fees. In North Carolina, for instance, a 1.5 million estate, will now pay about $6,000 in probate court fees. Only two years ago, that fee would have been $3,000.
I'm taking my grandmother's estate through probate right now and I can tell you that probate taxes/fees in my area are 1/10th of 1% of the estate. So, that comes out to $1000 on a $1,000,000 estate. That's not a lot. But, it is something. And, avoiding probate taxes or fees is one of the advantages of having and funding a living trust.
Most states have a streamlined or simplified procedure for estates with a probate value under a certain amount.
"Probate value" means the value of assets that have to go through probate -- called "probate assets."
Here's a quick primer on what is a probate asset.
Generally, probate assets are all assets in your name at death. Assets in a living trust do not go through probate because they are in the trust; not in your name.
However, even some assets in your name at death will not be considered probate assets. For instance, "payable on death" (POD) designations are common with bank accounts. At your death, if you designated someone as the POD for your bank account, he or she will get the account, without the necessity of it going through probate. The same thing happens to life insurance proceeds when you designate a life insurance beneficiary.
Joint ownership with rights of survivorship is another way to avoid probate. But, there are risks to consider with joint ownership.
Therefore, if your probate assets are under the simplified probate threshold in your state (often $20,000 or less), then you really don't need to worry about probate. Most estates that qualify for simplified probate can be probated in a matter of weeks or even days.
So, for estates that qualify for their state's simplified probate process, the living trust advantage of avoiding probate offers little benefit.
On the other hand, if your estate will not qualify for simplified probate, then you can expect probate to take six to twelve months and even two or three years for complicated estates.
So, large and/or complicated estates probably would benefit from avoiding probate by having their assets in a living trust. Large and/or complicated estates generally will save time and money if they are distributed through a living trust instead of a normal will/probate process.
Of course, most probate delays are caused by tax issues or asset collection issues. And, whether estate assets are distributed through probate or a living trust – these same issues can cause delay.
Death tax returns are normally due nine months after death. But, there may be difficult valuation issues (for instance). So, the executor (of a will) or trustee (of a living trust) can't be comfortable making all distributions until he knows the federal and/or state taxing authority agrees he's properly calculated the taxes due.
Unfortunately, it can take six to eighteen months after filing the death tax return for the state and federal taxing authorities to review it. So, it's easy to see how, with complicated estates, completing probate can take several years. But, again, the same issues could arise from distributing assets from a living trust.
So, a living trust is not going to eliminate delays caused by tax issues or asset collection issues. However, a living trust will usually, at least somewhat, speed up the distribution process because the probate court does not have to approve everything the trustee does. This removes one impediment to asset distribution.
The bottom line is:
You can read all about my executor story at How to Probate an Estate.
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