By Contributing Legal Editor Robin Gorenberg
Probate is the process of presenting your Will to the Probate Court after your death, and having the Will allowed and the Executor (now called “Personal Representative”) officially appointed, ultimately passing title to your property to your intended beneficiaries. In Massachusetts, the probate process takes at least 1 year, although most of the work is at the beginning and end of the process. It takes 1 year because under Massachusetts law, creditors of an estate have up until 1 year after your death to file a claim.
Only assets in your individual name go through your Will (and therefore the probate process). Property owned jointly or naming a beneficiary (i.e. life insurance, IRAs) pass directly to the joint owner or named beneficiary and do NOT pass via your Will or the probate process. The same is true for any accounts with “tod” or “pod” (transfer on death or pay on death) provisions. However, if you have an asset that allows beneficiaries (i.e. life insurance or retirement plans such as IRAs) and do NOT name a beneficiary, it is deemed to be your “estate,” which means your Will and the probate process. Therefore, as part of estate planning, it is very important to confirm who you have named as beneficiary of these types of assets.
Some of the disadvantages of going through Probate are the costs (lawyer’s fees and probate costs), the delay (1+ year process, delaying passing the assets to your intended heirs), and privacy (probate is a public process, and anyone can look at the filings). That being said, even though assets don’t pass to the beneficiaries until 1 year after death, assets can be accessed and dealt with during probate (i.e. real estate can be sold, but then the proceeds from the sale stay in probate until the 1 year mark).
You can avoid probate for individually owned assets by setting up a Revocable Trust and “funding” this trust during your lifetime. If you re-title your assets into the name of this trust, you lose no control by doing so and everything stays under your Social Security number. There is no change for income taxes; all income would still be reported on your individual income tax return.
Property held in the Trust is not part of your probate estate, and passes as set forth in the Trust. During your lifetime, you would be the Trustee and beneficiary of this Trust; you do not lose any control over the property. Then, the Trust provides for a successor Trustee and provisions for distribution upon your death.
You would still need to have a Will in addition to the Trust. The Will would pass everything into your Trust at your death (any assets not already transferred into the Trust during your lifetime).
In addition to avoidance of probate, funding the Trust also provides you with the following benefits:
1. Management: In the event that you become incapacitated, there would be no need to appoint a conservator or guardian with respect to the property already owned by the trust – your successor trustee would continue to manage the trust property for your benefit during your lifetime.
2. Privacy: When property passes at death via the trust (as opposed to your Will), it is private. No one will know who your beneficiaries are or how much money you had. Also, you avoid having to notify disinherited heirs (as you would have to if there was probate). Your Will and related probate documents, on the other hand, are public documents on file with the Probate Court, available for anyone to obtain.
3. Probate in other states: In addition to avoiding probate in Massachusetts (your state of residence), you also avoid “ancillary probate” (probate in any other state where you own real estate).
Funding Your Trust
In order for the Trust to achieve probate avoidance, you need to re-title your assets into the name of the Trust.
1. Real Estate: To transfer your real estate into your trust, a new deed is prepared and recorded at the Registry of Deeds, along with a simple Trustee Certificate. This is so the entire Trust does NOT have to be recorded at the Registry of Deeds. Also, a Homestead would be prepared and recorded (previously not allowed for Trusts, but now allowed) so that you get the $500,000 of creditor protection on your principal residence (up to $1 million for 2 people who are both over age 62).
2. Financial Accounts (non-retirement plans): To transfer liquid assets into these trusts, you can go through your broker or financial planner, or obtain the necessary forms from the institution to change the title on the accounts, stocks, etc. to the names of your trust.
3. Life Insurance and Retirement Plans: These already avoid probate by naming 1st and 2nd beneficiaries. However if you have young children (or any other beneficiaries who you do not want to receive their inheritance immediately at your death), you could name the Trust as beneficiary (instead of individuals directly) and provide in the Trust that those Trust shares are held until a later date or age (prior to which your Trustee would have the ability to use or distribution for the beneficiary’s needs).
*Avoiding probate and reducing estate taxes are 2 different matters. The current cutoff point for Federal estate taxes is $11.5 million ($23 million for married couples), but only $1 million for Massachusetts estate taxes, regardless of whether assets are in a Trust or in your name individually.
*Also, although the Revocable Trust avoids probate, it does not shelter assets from the rights of a spouse or from the claims of creditors. In addition, it does not protect your assets from long-term care (i.e. nursing home) costs. An irrevocable Trust would be needed for that purpose (to become eligible for Medicaid.
Contributing Legal Editor Robin Gorenberg, Esq. is an award-winning attorney who specializes in estate planning, probate and estate tax preparation for individuals and law firms. She works with clients on both basic and complex estate plans, from Wills to all types of Trusts. Her goal is to communicate in a way that clients can easily understand, and to make them feel comfortable with the process and the ultimate documents.