Ducks in a Row

How does a trust avoid probate? It's in the details.

In my experience, the primary reason most people set up trusts is to avoid probate. So, how does that work? Does the mere fact of having signed a trust cut out the probate court? Not quite.

In order to avoid probate after death, a trust must be properly “funded.” Every asset you intend to be governed by your trust must be either titled directly in trust, assigned to your trust in a stand-alone document, or made payable to your trust in a beneficiary designation form.

Personal effects become trust assets simply by your saying as much in your trust. Most other assets, however, require more formal documentation to avoid probate.

Accounts must be either titled in trust prior to death or transferred to trust upon death via beneficiary designation. Life insurance typically remains titled in your name, with your trust designated as beneficiary. Most closely held business interests can be titled in trust but are more often conveyed to trust via an assignment effective at death.

Real estate owned by individuals can be either titled in trust or conveyed to trust at death, usually in an “enhanced life estate” deed that allows those individuals to maintain all rights to the property while they are living.

Trust funding is not a one-size-fits-all proposition. Your best options will depend on factors such as your age and health, the nature and extent of your assets, and family circumstances.

Funding decisions should be made in consultation with your estate planning attorney and reviewed periodically to ensure they are still the best fit for you. Please contact us at 248.477.6300 if we can help.