Does a Trust Avoid Probate
An estate plan allows one to transfer their assets smoothly and quickly to beneficiaries after they pass away. Furthermore, one of the most common documents to include in an estate plan is a trust document that allows someone to place their assets into the care of a third party who will distribute these assets to the person’s family, friends, and favorite charity. There are many benefits to utilizing a type of trust during estate planning. However, you must ensure that you understand the type of trust you are creating and correctly set up that trust to maximize the benefits you are able to receive.
Setting Up a Trust
The person who creates and funds a trust is called the grantor. The grantor creates the trust by signing a legal document that designates the grantor, trustee, and beneficiaries. Additionally, the initial trust document states exactly how the trustee will manage and distribute the assets within a trust. The largest and most important part of this step is deciding exactly who will go in what positions and what assets you will include in the trust. In most cases, you can name as many trustees and beneficiaries as you see fit. However, you should note that a trustee does not receive any assets from the trust unless you also list them as a beneficiary. Additionally, a beneficiary will receive assets from the trust yet does not have any power on how the trustee will manage the assets while they are in the trust.
Funding a Trust
Funding the trust occurs when the grantor places their own assets into the trust. How you fund the trust and what you fund the trust with depends on the type of trust you create. However, you can typically fund most trusts with the following assets:
- Real estate: If the grantor funds a trust with real estate, the grantor executes a deed to transfer the property.
- Personal property with title document: Assets such as vehicles, boats, RVs, airplanes, and mobile homes will have a title document. If the grantor uses one of these assets to fund the trust, the grantor must simply change the name on these title documents to that of the trust. A grantor can take a similar action to transfer stocks and bonds into a trust.
- Other personal property: If any other property is put into a trust yet does not have a title document, the grantor must create a document describing the property that is going into the trust. For example, a grantor may place their household goods or collector items into a trust. They can do so by simply filing a description of these goods.
When funding a revocable trust, you can add assets over time as you acquire them. This is also useful if your financial needs become more certain as you age. However, the downside to a revocable trust is that the assets you place into the trust are considered your own personal property. The reason for this is that you have control over the assets even after you place them into the trust. Thus, if you are sued or if creditors want your assets, the assets within a trust can be taken.
Once you make an irrevocable trust, you cannot add assets to the trust at a later time. Additionally, once you establish the trust, you must appoint someone else to manage and distribute the assets within the trust. However, the advantage of using an irrevocable trust is that when you pass away and the trustee distributes the assets to your beneficiaries, the assets are not taxed under the principal’s estate.
How a Trust Avoids Probate
A trust allows the grantor—the person funding the trust—to avoid probate. The reason is that once assets transfer into the trust, they are no longer under the grantor’s name. Thus, the assets are owned by the trustee. Furthermore, when the grantor of the trust dies when the assets will go to the beneficiaries. As the grantor of the trust no longer owns the property, probate is not required to transfer asset ownership. The main goal of most trusts is to avoid probate. Thus, it is imperative that you understand the role a trustee will have in your estate.
A trustee is a person or entity that holds, manages, and eventually distributes property or assets for the benefit of a third party. Because the trustee oversees and manages the assets within a trust, to be able to serve as a trustee in the United States, a person must be at least eighteen years old and not be experiencing any forms of incapacity. In order to protect your assets and beneficiaries, you should name a successor trustee in case the original trustee passes away or no longer wants to have their responsibilities.
Trust and estate laws are complex. This is so no matter the type of trust you decide to establish. As such, it is extremely important to have legal representation that can help you correctly set up your trust. The Antonoplos & Associates trust and estate lawyers have over 20 years of experience helping clients in DC, Maryland, and Virginia set up living trusts, testamentary trusts, irrevocable life insurance trusts, charitable remainder trusts, qualified domestic trusts, spendthrift trusts, special needs trusts, asset protection trusts, and Totten trusts. With this knowledge and experience, we can help with any legal issues that occur from setting up your trust.
Furthermore, Peter Antonoplos, founder and managing partner of Antonoplos & Associates has an LLM in Taxation from Georgetown University Law Center. With this knowledge, Peter can help you decide what is the best type of trust for your and your family and maximize the cost savings you receive from setting up a trust in DC, Maryland, and Virginia.
Contact our DC Attorneys for More Information
For more information regarding does a trust avoid probate, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding probate law, check out our blog.