Probate is the legal process of administering a person’s assets after their death. It involves taking legal custody of a decedents assets, paying legitimate creditor claims and distributing the remaining assets to those beneficiaries entitled to them in accordance with the decedent’s will or in accordance with the state’s intestate succession rules. Intestate succession statutes rule the distribution of a decedent’s estate if the decedent had no valid Last Will and Testament at the time of their decease. Many times, probate can be expensive and time consuming. The probate process is available to the public, so the process exposes the decedent’s financial affairs to public scrutiny.
Some assets can be transferred without going through probate, such as property that automatically transfers because it is owned jointly with others with rights of survivorship or as tenants by the entirety. Retirement plan accounts, annuities, paid on death accounts where a valid individual beneficiary is designated are transferred by operation of law, without the need for probate.
A trust is a legal entity established by a Grantor through an agreement or a court order which allows a person or entity called a Trustee to control the assets for the benefit of a third party beneficiary. The Trustee manages and distributes the trust property according to the terms of the trust. When setting up a revocable living trust, which is the most common trust, the grantor should ensure the assets are transferred into the trust. The transfer simply means that the assets are titled into the trust’s name, which avoid probate upon the grantor’s death. A common error is to create a revocable living trust but not to re-title the property to the trust. If an asset is titled in the decedent’s name and not the trust’s name, then upon the death of the owner the asset will be part of the decedent’s probate estate.