Why a Probate Might Be Necessary Even with a Trust—and How to Avoid It
As an estate planning attorney, one of my least favorite conversations with a new client starts with me saying, “I’m so sorry, but unfortunately, even though you have a trust, we are going to have to do a probate.” Clients are surprised to learn this can happen and ask, “Why would this estate still need to go through probate?” It’s a great question that underscores the importance of understanding the finer details of estate planning. Trusts are a powerful tool but not a silver bullet that automatically bypasses probate. Let’s explore why probate might still be necessary, the potential negative consequences of this, and what steps you can take to ensure your estate plan works as intended.
Understanding the Purpose of a Trust
Before diving into why probate might still be necessary, let’s briefly review what a trust is and why many people create one as part of their estate plan.
A revocable living trust is a legal document that holds and manages your assets during your lifetime and specifies how those assets should be distributed upon death. The key advantage of a trust is that it allows your estate to bypass the probate process—a court-supervised procedure for allocating a deceased person’s assets—ensuring your heirs receive their inheritance more quickly and with less hassle.
Common Reasons Probate May Still Be Required
- Assets Were Not Properly Transferred into the Trust
One of the most common reasons a probate is necessary despite having a trust is that certain assets were not transferred into the trust during the grantor’s life. For a trust to function correctly and avoid probate, your assets must be titled in the name of the trust. This includes real estate, bank accounts, investments, and other significant assets.Negative Consequence: If you forget to transfer any assets into the trust or acquire new assets after creating the trust and fail to title them correctly, those assets will not be covered by the trust and may need to go through probate. Probate causes delays, legal fees, and public exposure of your financial affairs.
- Outdated or Incomplete Documents
Estate planning is not a one-time event. Life changes, and so should your estate plan. If you have assets meant to pass to a beneficiary by way of a beneficiary designation, such as an IRA or a life insurance policy, and your beneficiary designation is outdated or incomplete, it might not effectively address your current situation.Negative Consequence: An outdated or incomplete beneficiary designation can lead to a probate. Typically, if no beneficiary is properly named, the asset will be paid to the estate, which will mean a probate if the assets are valuable enough.
How to Avoid Probate Even with a Trust
- Regularly Review and Update Your Trust
It’s crucial to review and update your trust regularly to ensure its effectiveness. Major life events such as marriage, divorce, the birth of a child, or the purchase of new assets should prompt a review of your estate plan. Ensure that any new assets are promptly transferred into the trust and that the trust reflects your current wishes. - Review Beneficiary Designations
From time to time, it is a good idea to double-check who you have named as primary and secondary beneficiaries on all of your retirement accounts (IRAs, 401ks, 403bs, etc.) and life insurance policies. Keep a dated list of your beneficiary designations so you can easily check them without having to visit multiple different accounts and websites.
Conclusion
While a trust is an excellent tool for avoiding probate, it is not foolproof. The key to ensuring your estate avoids probate lies in diligent planning, regular updates, and proper asset management. By taking these steps, you can maximize the effectiveness of your trust and provide your loved ones with a smoother, less stressful inheritance process.
