This is part of our ongoing series: Estate Planning 101. Last month we discussed how and when a Last Will and Testament is used. It is only used if a formal probate process is needed. Generally, there is no need to have a formal probate process if there are no orphaned assets. Probate is an expensive and very public process. Therefore, the goal for many people is to avoid the public probate process.
Some people attempt self-help to avoid having orphaned assets by: putting children’s names as joint owners on bank and investment accounts and/or transferring real estate to children, either directly or as joint owners. For the lucky few, this may work fine. But for many, this causes more problems than it solves. Each of these are gifts that cannot easily be ungifted if your circumstances change in the future. If you have done this, your assets are now also your children’s assets (real estate is subject to your child’s spouse’s rights, as well) and subject to their life events: marriage, divorce, creditor problems, etc. The problems you can unknowingly create are many. Refer to my January 2023 article titled 3 Tips to Avoid Probate for more information.
The most common tool to avoid probate is a revocable living trust. Think about it like a soft serve ice cream cone. The document the lawyer writes is the cone. You design it. The trustee is the person who holds onto the cone and keeps the ice cream away from the heat. You can hold on to the cone while you are alive and capable. You choose who will hold onto the cone if you become incapacitated and after you have died. The beneficiaries are the people who get to eat the ice cream. While you are alive, you get to eat the ice cream. You choose who gets to eat the ice cream after you have died. You may even decide to put ice cream in a cup for a person with a disability, at your death, thus protecting that person’s government benefit entitlement and the remaining ice cream. (See the July 2023 article: Special Needs Planning). You can squish the ice cream, add more ice cream, take ice cream out, etc. anytime you want. At your death, your trustee takes over and dishes out the ice cream according to your wishes. No orphaned assets. No probate.
