Saturday, August 30, 2008

Probate vs Trusts

What is Probate?

Probate is a court process, with or without a Will, which determines the valuation and the distribution of a deceased person’s property.

Through the Probate Court, the Probate Judge makes sure your debts are paid, establishes clear title to your property, and then distributes what remains of your assets according to your Will or applicable law, if you do not have a Will.

The length of probate varies. In some instances, probate can be relatively long, but it may take months to several years in some circumstances. Some probates have even taken much longer. In certain situations, the availability of informal probate allows for minimal or no contact with the courts, and may reduce the time required to probate a Will.

What is Living Probate?

When an individual becomes unable to manage his or her personal or business affairs for any reason (Alzheimer’s, stroke or mental incapacity), legal guardianship can be established.

Through the court proceedings, an individual applies for and may be granted the legal authority to handle the financial and personal affairs of the incapacitated person.

These court proceedings can be costly (attorney fees), court filing fees, time consuming, stressful, and potentially embarrassing to the family (court records are public information).

What is the Cost of Probate?

The cost of the probate process may be hundreds to several thousand dollars depending on a variety of factors, including the value of your estate. Informal probate, if available for your estate, may reduce these expenses.

Disadvantages of Probate

  • Court Costs
  • Waiting Period
  • Possible Expenses, including Attorney Fees
  • Possible Public Disclosures of Personal Financial Matters
  • Potentially Time Consuming and Disruptive
  • Potentially Stressful to Surviving Family Members and Beneficiaries

What is a Living Trust?

Basically, a Living Trust is a legal entity that is created to hold title or ownership to your designated assets.

Under your direction, title to your designated assets is transferred from yourself individually to your Living Trust in which you serve as the Trustee. You retain control of the Trust Property, because you are the Trustee of the Living Trust.

A Revocable Living Trust holds the title to your assets, but allows you complete control during your lifetime and at your death provides for the transfer of all trust assets validly placed into your trust to your named beneficiaries without the necessity of probate.

Structure of a Trust

  1. The Trustor: A person who places their assets into the Trust – you and your spouse.
  2. The Trustee: A person who controls the assets of the Trust – you, or your designee.
  3. The Beneficiaries: You are the beneficiary during your lifetime. Upon your death, those whom you have designated in your trust will be the beneficiaries. Typically beneficiaries include: children, grandchildren, loved ones, and charities.
  4. The Successor: A designated person or Trust Company who, upon your death or incapacitation administers the assets of your Trust and, ultimately, distributes the assets of your trust to your beneficiaries, in accordance with the instructions previously set forth by you as described in the Trust. The Successor is usually the eldest or most competent child, but can be any qualified person of your choosing

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