"My Dad Had a Trust, Do I Still Have to File for Probate?"

"My Dad had a Trust, so do I still have to file for Probate?"

"My Stepmom set up a Trust for all of us, so why are we still having to file for Probate?"

If you had a loved one who specifically set up a Trust as a part of their estate plan so that you, their Heir or Beneficiary, didn't have to deal with the probate process -- it may be incredibly disappointing and frustrating if you discover that you do have to file for probate after all.

While not every estate is required to go through probate, there are strict regulations and guidelines imposed by each state to ensure the lawful distribution of assets following a person's death. Because the law is such a complex matrix of rules, even a Trust set up with the intention of avoiding probate may not achieve this objective.

Here, we go over some of the most common reasons why probate may be required for an estate, even when a Trust was used to remove assets from the estate. This can help you determine why you still have to go through probate as well as avoid the same mistakes for your own estate.

Using a Trust to Avoid Probate

Many estate planners opt to establish a Trust as a key piece to their estate plan. Oftentimes, the main objective is to avoid Probate, an often cumbersome and time-consuming process. 

Probate is the court-supervised process of authenticating a deceased person's Will (if available) and overseeing the distribution of their assets. It is notorious for its potential to be both time-consuming and costly. For example, the current estimated length of probate in California is anywhere between 9 and 18 months. The costs include the filing fee, as well as compulsory attorney and executor fees, which vary depending on the state and the size of the estate.

Another key reason why individuals wish to avoid Probate is its lack of privacy. Court records are public information, which means that if someone were to go looking for your information, they can find it. That leaves personal and financial data, including information regarding the deceased and their Beneficiaries, exposed. In this modern era where data is readily and easily accessible, individuals are typically motivated to seek alternatives that can provide both privacy and smoother, quicker distribution of their assets upon their passing.

Enter: the Trust. This estate planning tool offers a more direct and private method of transferring assets to Beneficiaries.

A Trust, in contrast, offers a more direct and private method of asset transfer. It allows an individual (the Trustor) to place assets into a Trust, managed by a Trustee of their choice, for the benefit of their designated Beneficiaries. This legal arrangement bypasses the probate process, facilitating a faster and often less expensive transfer of assets upon the Trustor's death. Trusts not only offer the advantage of privacy and efficiency but also grant the Trustor greater control over the distribution of their assets, including stipulations for how and when beneficiaries may access their inheritance. This level of control and the potential to minimize estate taxes make Trusts an attractive option for many seeking to streamline their estate plan and protect their legacy.

However, as we discuss next, there are some scenarios in which an estate may still have to go through Probate, even if the deceased individual went through the motions of setting up a Trust.

Reasons Why Probate May be Required, Even with a Trust

Despite the appeal of Trusts in estate planning, there are instances where assets still might need to go through the probate process. What we want to avoid here is human error. It's critical to think of your estate plan holistically and ensure your strategy is comprehensive throughout.

In the next few sections, we'll uncover some of the most common reasons why a Trust may not fully avoid probate. Note that these are just examples and not an exhaustive list. However, it should start painting a good picture of possible oversights that can happen. When it comes to estate planning, meticulous planning is the key to success.

The Trust Wasn't Properly Funded

One of the primary reasons an estate may have to go through probate, even when a Trust is present, is due to the Trust not being properly funded. A Trust is a legal entity that holds assets for the benefit of named Beneficiaries. For it to effectively bypass probate, assets must be transferred into it. If the Trustor fails to transfer all of their assets into the Trust, any assets outside of it at the time of their death are not covered by the Trust's terms. This oversight means that assets would have to be probated to be legally transferred to their intended Beneficiaries.

Funding a Trust properly is a critical step that involves more than just creating the Trust document; it requires a meticulous review and transfer of assets.

Assets were Acquired in the Decedent's Name, after the Trust was Created

Assets acquired by the decedent after the Trust was created may have to pass through probate if they were not titled into the Trust before the decedent's death. When a Trust is established, it only covers assets that have been formally transferred into it. If the decedent acquires new assets in their name and does not amend the Trust or retitle these assets in the name of the Trust, these assets remain in the decedent's personal name at the time of death.  These assets will have to pass through probate before they can be distributed to the decedent's Beneficiaries.

Assets that didn't have to go into the Trust don't have Beneficiary Designations

Beneficiary designations are a straightforward way for certain assets to bypass the probate process, transferring directly to the named Beneficiary upon the owner's death. This process applies to a range of financial assets such as life insurance policies, retirement accounts, and some bank accounts. When these assets have a Designated Beneficiary, they do not have to pass through probate and therefore do not have to be included in a Trust.

If for some reason an asset eligible for a Beneficiary Designation does not have one, it will, however, have to go through probate. This oversight is a painful one to make, as you will lose out on the streamlined transfer to a chosen Beneficiary.

Late Arrivals

Even when an estate plan appears meticulously crafted, there can still be circumstances where Beneficiaries face the probate process, notably with late-arriving funds. Late-arriving funds refer to assets that become known or are acquired after the death of the asset owner and after the original estate planning documents, such as Trusts, were completed.

Examples of such funds include belated payments of dividends, earnings from investments not previously accounted for, or unexpected inheritances that the decedent was entitled to but had not yet received.

These late-arriving funds present a unique challenge as they were not placed into the Trust or accompanied by Beneficiary Designations ahead of the asset owner's death.

A Saving Grace: Small Estate Laws

If you do discover that part of an estate has to pass through probate (when there were plans otherwise via Trust), know that you may have access to a saving grace, and that is any applicable small estate laws in your state.

For example, California allows for a "Small Estate Affidavit." For estates that qualify, the small estate affidavit speeds up the probate process. A "probate lite," if you will. According to the California Probate Code 13200, a small estate is limit to a value of $184,500. However, there is a limit to real property (real estate, physical belongings, etc.) that can be passed through the small estate process, which is $61,500. If the assets that are not covered by the Trust are valued under these limits, then the estate may be eligible for the expedited probate process. This is a lot less daunting than the full probate process.

To find out whether you live in a state that provides exceptions for small estates, research the small estate laws and procedures in your state. These are typically found in the probate code.

Trust-building for Avoiding Probate

Building a Trust-based estate plan that effectively avoids the probate process requires careful planning and strategic execution.

Here are several tips to ensure that your estate bypasses probate smoothly:

• Establish a Revocable Living Trust: One of the most reliable methods to avoid probate is by creating a Revocable Living Trust. This allows you to retain control over your assets during your lifetime, with the assets transferring directly to your Beneficiaries upon your death, outside of probate.

• Title Your Assets Correctly: Ensure that all assets are properly titled in the name of the Trust. This includes real estate, bank accounts, and investment accounts. Failing to do so can result in those assets going through probate.

• Keep Your Trust Document Updated: Life changes such as marriage, divorce, the birth of children, or the purchase of new assets requires updates to your Trust documents to reflect your  wishes and circumstances. Any time you have a life change or become the owner of new property, be sure to review your estate plan and Trust document to ensure your objectives remain intact.

• Designate Beneficiaries Where Appropriate: For certain types of accounts like retirement and insurance, designating Beneficiaries directly allows these assets to bypass the Trust while still avoiding probate. When this option is available, be sure to designate a Beneficiary and keeps these documents up-to-date.

• Consider a Pour-Over Will: A Pour-Over Will can serve as a safety net by transferring any overlooked assets into your Trust upon your death. While the Pour-Over Will itself goes through probate, it ensures that all your assets ultimately become part of your Trust.

• Use Joint Ownership Wisely: For assets like real estate, joint ownership with the right of survivorship means that upon your death, the property automatically transfers to the surviving owner, outside of probate.

By implementing these strategies within your Trust-based estate plan, you can significantly reduce the burden on your Beneficiaries and ensure a smoother transition of your assets upon your passing.

Handle Probate with Confidence

A lot of people view probate with a sense of dread, and understandably so. The process can drag on and on, and all the fees add up and can take out a significant portion from the estate.

There are cases in which probate is unavoidable. However, there's no reason to go through the process with a blindfold on. Getting professional support at your side could be the key to navigating probate with more ease and confidence, significantly reducing the stress (and at times, costly mistakes) that can accompany it.

At Trust & Will, we understand that navigating the probate process can be overwhelming– but we're here to help.  Our plans provide clear, county-specific guidance and support from probate experts so you can stay on top of the process. Learn more about our probate offerings.

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