(Avoid Probate – This is a small subchapter on how to avoid probate from my book Protecting Your Financial Future.)
Here is how to avoid probate. When your bank account is owned by your trust, i.e., it is in the name of your trust, and you die, did the owner of the account die? No, you, the trustee, the manager of the account died. The trust, that is the owner of the account, did not die. Will the account be probated? No! The owner isn’t dead. Just the manager is dead. When the president, the manager, of IBM dies, does IBM have to probate all of its assets? No, the stockholders get together and elect a new president. That’s the way to avoid probate.
When you open the account at the bank in the name of your trust, the bank lets you open the account, recognizes your trust and agrees to recognize the trustees named in your trust. Of course the trust document has a section in it that appoints a new trustee, the “successor trustee,” to act when you are dead. There is no probate. In your trust trust you specify who you want as your successor trustee. It can be your wife, husband, mother, daughter, friend, etc. If you choose Uncle Harry, then designate him as the “successor trustee.”
Avoid Probate Example #1
OK, let’s say you are married and both you and your spouse die in an automobile accident today. What happens at the bank? Uncle Harry walks into the bank tomorrow, and the conversation with the banker goes something like this:
Uncle Harry: Hi Mr. Banker. John and Mary were killed in an automobile accident last night.
Banker: Yeah, I read about it in the newspaper. Too bad!
Uncle Harry: I need to get into the bank account.
Banker: Drop dead, buddy. Go get me a probate order. I’ll see you in a year and a half.
Uncle Harry: No, this is a trust account.
Banker: Oh, yeah.
The banker goes into the back room to get the file. When you opened the account, the banker may have made a copy of all or part of the trust. Usually the banker doesn’t actually want a copy of all the pages in your trust. It’s best to supply the banker with a certification or summary of the trust from your attorney or argue that the banker only needs a copy of the first and last pages, just to reference the trust. (When you have an attorney draft your trust, ask if a certification of the trust document is part of the deal.) If Uncle Harry has a copy of the death certificate and the trust, or the banker has his own copy of the trust, the banker will know Uncle Harry is the new trustee. The banker will ask for Uncle Harry’s identification and simply say, “sign here.” You will avoid probate.
Uncle Harry is into the bank account. No court order. No lawyer. No two year wait. No probate! When you died, there was an instantaneous transfer of power to the new trustee.
Oh, the money isn’t Uncle Harry’s now. It still belongs to the trust and Uncle Harry is now under the sacred fiduciary duty to follow your instructions and manage or distribute the property exactly according to the instructions you left behind in the trust.
You just eliminated probate. It was a slam dunk, but most people who get a living revocable trust never understand what you now have learned. You have to know why the trust works. The trust has to own the property. Most people forget to open the new checking account in the name of their trust, or they never change their existing checking account into the name of the trust. They are under the false impression that just because they have a piece of paper called a trust, they will not go through probate. You have to use the trust.
Avoid Probate Example #2
In 1976, Kristy’s parents spent in today’s dollars about $8,500 for a living revocable trust, and they happened to get a good document. When I started to work with living revocable trusts in 1981, I looked at their trust. Although they had a good document, it would not have let their family avoid probate when they died.
The lawyer had not taught them how to use the trust. Just having a trust and understanding it isn’t enough. You have to USE your trust to avoid probate. I had to go back and teach them how to put the bank accounts and real estate into the trust.
Actually, the lawyer who drafted their trust had made out a new deed transferring their house into the trust, and he had sent a letter to the bank notifying the bank that a trust had been created. These were steps in the right direction, but Kristy’s parents had bought more real estate and opened all new bank accounts. None of the new real estate or bank accounts were in the name of the trust. If they had died, everything would have gone through probate.
The goal of my book is to give you the information you need to draft your own living revocable trust and avoid probate, using two or three good form books. Or you can pick a good lawyer and get it done. Whatever you do to get it done is OK by me. But I have to stress that just getting an understanding of the trust really isn’t enough. You have to really go through the steps to use the living revocable trust or it will not avoid probate. It is a “living” dynamic document and concept. It isn’t something that you just put in a safe deposit box and forget about. Whether you write it or a lawyer writes the trust, it doesn’t matter. You have to know your trust inside and out and use it regularly.
If you want to set up a trust, my book, Protecting Your Financial Future, has detailed information on how to avoid probate for you.