Why Do I Have to Do a Probate When I Have a Trust?
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 that this can happen and ask “why would this estate still need to go through probate?” It’s a great question and one that underscores the importance of understanding the finer details of estate planning. Trusts are a powerful tool, but without proper care and maintenance, they are 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 the reasons 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 your death. The key advantage of a trust is that it allows your estate to bypass the probate process—a court-supervised procedure for distributing 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 the decedent neglected to transfer one or more assets into the trust during life. For a trust to function properly and avoid probate, your assets need to be titled in the name of the trust. This includes real estate, bank accounts, investments, and other significant assets. When your trust was first established, your attorney would have given you instructions for you to transfer any assets, such as bank accounts and financial accounts, the attorney did not able to transfer. Negative Consequence: If you forget to transfer any assets into the trust, or if you 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. This is a very common occurrence, and most of the time we can help our client get access to the decedent’s assets without probate. However, occasionally we do have to do a probate to gain access to assets that the decedent did not transfer to their trust while alive. Probate causes delays, legal fees, and public exposure of your financial affairs. - Outdated or Incomplete Beneficiary Documents
Estate planning is not a one-time event. Life changes, and so should your estate plan. If you have assets that are 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 name, 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
Make sure that any new assets are promptly transferred into the trust and that the trust reflects your current wishes. To ensure your trust is effective, it’s crucial to review and update it regularly. We tell our clients to read their documents every three to five years to make sure they still make sense. 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. These life changes are things that your attorney won’t know about, and can’t help you with, until you meet. - Review Beneficiary Designations
From time to time, just as you need to review your estate planning documents, 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 all of your beneficiary designations so that 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, consulting with your attorney about needed updates, and proper asset management. If your own attorney is retired, we would be happy to review your documents with you. By taking these steps, you can maximize the effectiveness of your trust and provide your loved ones with a smoother, less stressful inheritance process.
