Revocable living trust helps sidestep probate, expenses

Are you aware that having a will does not keep your estate assets from being probated upon your death? Although having a will may reduce probate ex-penses, non-probate transfers must be used in order to avoid probate and its related expenses.

One method of probate avoidance is joint ownership of property. By operation of law, a decedent's share of property owned in a joint tenancy automatically passes to the surviving joint tenant upon the decedent's death.

One major disadvantage to joint ownership, however, is that the property avoids probate on the death of the first joint tenant, but is still subject to probate upon the death of the surviving joint tenant.

This could be a potential problem for a husband and wife who hold property jointly.

Another disadvantage to joint ownership is the lack of complete control over the property.

A second method to avoid probate is transfer on death (TOD) designations. Bank accounts, real property and automobiles can be transferred to a designated beneficiary upon the death of the owner by using a TOD designation.

The TOD method is more advantageous than joint ownership of property because the owner remains in complete control of the property.

In addition, the owner can change the designated beneficiary at any time he wishes.

A third, and best, method for probate avoidance is the revocable living trust. A revocable living trust operates as follows: The owner of the assets, or grantor, transfers ownership of his assets to the trust. In the trust document, the grantor typically names himself as the initial trustee of the trust.

The trustee is the party who has legal ownership of the assets and has a fiduciary duty to manage the trust assets. The trust document may also provide that the grantor reserves the power to amend, change or revoke the trust at any time he desires, thus keeping the grantor in complete control of the assets.

Upon the grantor's death, the trust becomes irrevocable and the successor trustee named in the trust document distributes the trust assets to the beneficiaries as directed by the trust. Thus, probate administration and its related expenses are avoided.

In addition, the disposition of the grant-or's estate remains a private family matter and is not exposed to public record.

This is not to say that you shouldn't have a will. A "pour-over" will should accompany a revocable living trust so that any property not transferred to the trust during the grantor's lifetime will pour over into the trust upon the grant-or's death and avoid probate administration.

In addition, guardians for minor children must be designated in a will, not a trust document.

Although probate administration is not always the evil that it is commonly thought of, it does have its disadvantages.

Often, probate administration will delay the distribution of assets as well as place the assets on public record.

In addition, attorney fees and court costs incurred as a result of probate reduces the amount of estate assets available for distribution to the beneficiaries.

Since there are a number of methods available to avoid probate administration, it makes sense to design an estate plan that does so.

(Douglas A. Carter is an associate at Lowther Johnson, Attorneys at Law LLC. His areas of practice include taxation, estate planning and corporate law.)