To Probate or Not to Probate

Victor (our fictional character) has decided to face his mortality and pay attention to taking care of his family.  He is married to Sarah (second marriage) and there are three children, all from Victor’s first marriage. Sarah also has children from her prior marriage. Victor’s friends are telling him to set up a living trust to avoid probate for the following reasons: probate is expensive generating court and additional attorney fees; protection of privacy can be accomplished by avoiding probate because wills are in the public domain; avoiding probate  saves taxes.

The first two reasons in the above paragraph often are sensible ones; however, avoiding probate does not save taxes. A decedent’s assets are subject to estate tax even if not part of the probate estate.

What works for Victor’s friends may not work for Victor.  The decision to set up a trust or to put assets in joint name to avoid probate involves many factors, and they have to be analyzed based solely on Victor’s situation. Frequently in second marriage situations, setting up a trust under a will works well to make sure the surviving spouse gets sufficient income during her lifetime; however, upon his/her death, the  remainder goes to the children from the first marriage.

Often people have assets that can’t legally be put into a trust, or, more commonly, they neglect to transfer title of their assets to the trust. Setting up a living trust is in good measure prepaying your probate costs by paying the attorney to set up the trust document (and a “pour-over will” to cover assets or situations that can’t fit into the trust format). The overall savings may be minimal or even non-existent.

The purpose of probate is to carry out the desires of the decedent that he/she sets forth in the last will and testament. Having an estate go through the probate process provides a method by which an independent third party (the probate judge) can make sure that the representative(s) of the decedent are doing what they were instructed to do.

Another very good reason to avoid probate is in the case where you own property in a state other than your state of residence. This can get quite costly. There are ways to transfer title to the property so that probate can be avoided in that state.

Eugene H. Fleishman, CPA, Principal