There are two major legal processes that handle the transfer of assets from the deceased—probate proceedings and trust administration. The probate court is available to everyone, including those who died without a will, and its proceedings are public. Unlike probate, trusts are created privately between parties, and they can be used during one’s lifetime to organize and protect assets.
One of the traditional aims of estate planning is to avoid as much of the probate process as possible since it is costly and time-consuming. However, probate is the only way to put a will into effect, where necessary, and to close the estate of the deceased (also called the decedent). A balanced estate plan takes both processes into account.
What can you and your family expect from the probate process and from handling trusts?
Probate: How It Works
All the property and assets in the decedent’s name at death become part of the probate estate. To legally distribute this estate to the decedent’s heirs or the beneficiaries of the will, the estate must be probated. If the decedent had a will, the executor—the estate’s personal representative—presents it at probate court, and interested parties will have the opportunity to challenge it. If they died without a will, or intestate, the estate’s personal representative presents the estate for administration. In that case, state law divides the property between the heirs—the next of kin.
Whether or not the decedent had a will, the estate’s personal representative will have to organize and wind down the estate’s affairs, which include:
- Settling the final debts and taxes owed
- Preparing an accounting for the court, often with the aid of a CPA
- If required, providing a year’s support for the spouse of the decedent
- Distributing the gifts and assets remaining among the heirs or beneficiaries
It can take over a year for the court to complete a probate. The heirs or beneficiaries will have to wait for a legal distribution before receiving their property, which can cause them financial difficulties. If some parties are unaccounted for and a “common form” probate is used, a missing party has the right to appear within four years. Furthermore, probate can only begin after the decedent is gone; a living trust can be managed smoothly both before and after their death.
However, probate is often necessary, especially if the decedent left a minor child. Unlike a trust, a will can nominate a guardian for the decedent’s children. This is crucial if the child does not have a living parent—and parents are well advised to select a possible guardian in case of accidental simultaneous death. When the nominated person files for testamentary guardianship, the judge will respect the parent’s wishes as given in the will.
Trusts and Estate Planning
A comprehensive estate plan often includes trusts because they can allow the family to avoid waiting on the probate court to receive money or property. There are two major categories of trusts—living trusts (or inter vivos trusts) and testamentary trusts. Living trusts are created during one’s lifetime, and testamentary trusts are created by the terms of a will after death.
The simple underlying principle of every trust is that the settlor—the person who creates the trust—gives property to a trustee to hold it for the trust’s beneficiaries. The trustee will care for it, retain it, or distribute it by the terms of the trust instrument. The trust instrument is the document that sets out the rules for the trust. Unlike a will, which will be on the public record in probate court, trust instruments can be kept private.
Estate planners can use trusts to accomplish many crucial tasks, including:
- Holding title to the family home or other real estate
- Preserving assets for the use of a minor (e.g., for tuition)
- Protecting assets for troubled loved ones or from unscrupulous persons
- Retaining money or property for the expenses of a disabled family member
Trusts can often legally protect assets so that they can remain in the family. For example, a disabled person receiving government benefits has a very low income threshold, and they cannot receive an inheritance of any value without disqualifying themselves for the medical and monetary aid they need. A special needs trust (SNT) allows a trustee to spend money on the disabled person’s behalf without endangering their benefits. Similarly, a Medicaid asset protection trust (MAPT) can preserve the family home and other assets for those who need to qualify for Medicaid during their senior years.
Although trusts are a great way to provide seamless estate planning before and after the death of a settlor, they have disadvantages—mainly in upfront time and effort. Some companies offer boilerplate forms for creating a trust without an attorney, but it is legally dangerous. Without special advice, the trust may be void, which can cause an expensive mess. (For example, Georgia state law requires an SNT to be approved by the Department of Community Health.) Trustees for any trust need to maintain it and provide regular accounting and reports, and other trusts will have specific requirements and laws by which a trustee has to abide.
What Does Your Family Need?
If you reside in Georgia and want to begin planning your estate, Mike Bascom can help you decide how to proceed. During your free initial consultation, the team can discuss your assets and suggest a plan for you—whether you need to draft a will, want to create a trust, or need assistance with asset protection. Contact our Forsyth County office today at 770-285-5493 to schedule an appointment.