It's a word that few people understand but everybody wants to avoid.
Probate is the name given to the legal process used to transfer your assets after you die to the people who are supposed to inherit them. It is usually a long, confusing, dreary, even boring process, and worst of all, it can be expensive.
The fees for the probate lawyer and executor are based on the value of the estate, range from 6% to 10% and are paid from the estate before any of the heirs receive their inheritance.
There are many probate-avoidance schemes, ranging from the simple device of holding property in joint tenancy (which means that the joint tenant automatically becomes the owner of the property after your death, without going through probate) to complicated mechanisms created by estate-law specialists for their well-heeled clients.
One of the most common and least complicated ways to avoid probate is by using a living or inter vivos trust.
A trust is a paper entity. It does not materialize out of thin air. You or your lawyer must prepare a trust document, the paper work needed to establish the trust.
This type of trust is revocable, which means that you can change your mind about who is going to receive your assets after you die.
In the trust document, you'll name a trustee, the person who is charged with the responsibility of managing the property held by the trust. In most cases, you name yourself as the trustee. You also name beneficiaries in the trust document; those are the people who will receive the property in the trust after your death--without having to go through probate.
Once a trust is established, you must transfer property to the trust, which becomes the legal owner of it. For example, if you want to transfer your home into a trust, you will have to execute, have notarized and then record a quit-claim deed listing the trust as the new owner.
The biggest advantage of a living trust is that it helps avoid the probate process and the sometimes expensive probate fees. The transfer of assets is much quicker; you don't have to wait the several months, or even years, that it can take for the court to approve the transfer.
Probate fees are based on the market value of the property in probate, according to estate-law specialist Denis Clifford, author of the book "Plan Your Estate: Wills, Probate Avoidance, Trusts & Taxes." That means if your house is worth $200,000 and is passed through probate, your estate must pay a fee based on a percentage of the $200,000 even though you may owe $100,000 on it.
By placing your house in a living trust, you avoid those high probate fees. And because probate is not required for estates worth less than $60,000, you may be able to place all of your big-ticket items (car, house, boat) into the trust, and with less than $60,000 left, you can avoid probate altogether.
Name Yourself Trustee
As long as you name yourself as the trustee, you won't have to file a separate trust tax return with the IRS.
If you become incompetent, it will be easier for your assets to be managed during your incapacity, because you will name a successor-trustee in the trust document who will take over your affairs.
A living trust is not for everyone, especially because it does take time and effort to create and maintain it. It is not, as Clifford notes, a "legal wonder drug that should be used for all property in all cases," although some lawyers and authors do suggest that everyone should have one.
All transactions involving the property transferred to the trust have to be made in the name of the trust. Separate records should be kept. The added inconvenience of record keeping may explain why many younger people, who probably do not consider estate problems an immediate concern and who may buy and sell several houses during their lifetimes, decide not to pursue this estate-planning method.
O Bezaire & Bezaire, a law firm with five offices in Southern California, conducts free monthly lectures about living trusts. For scheduling information, call (800) 62-TRUST.
Before you decide whether a living trust is right for you, it's a good idea to do a little research. The Denis Clifford book is quite useful. "How to Avoid Probate," by Norman Dacy, is also a good resource. And HALT (Help Abolish Legal Tyranny) publishes estate-planning materials for the lay person. (HALT is located at 201 Massachusetts Ave. N.E., Suite 319, Washington, D.C. 20002.)
After researching the subject, if you decide you want to set up a living trust, you should consult a lawyer to draft the trust document or review it if you try to write it yourself.
Attorney Jeffrey S. Klein, The Times' senior staff counsel, cannot answer mail personally but will respond in this column to questions of general interest about the law. Do not telephone. Write to Jeffrey S. Klein, Legal View, The Times, Times Mirror Square, Los Angeles 90053.