A person’s decision to create a trust typically rests upon two factors: (1) the ability of a trust to manage distributions much more effectively than a will; and (2) that person’s desire to spare his or her beneficiaries the time and expense of probate. However, mere execution of a trust will not necessarily prevent particular assets from winding up in probate court. To avoid probate, an asset should be managed in one of three ways:
Hold the asset in the name of your Trust. Typically, this applies to real property. To avoid probate court, any real property you own must be transferred to your Trust—which means that you must execute a Grant Deed transferring the property from yourself as an individual owner, to yourself as Trustee of your Trust. The execution and subsequent recording of this document notifies the relevant county that your property is in trust and is therefore no longer subject to the probate court’s jurisdiction. Regarding financial accounts, while you can take title to these assets in the Trust’s name, generally it’s simpler to manage these accounts by one of the methods discussed below.
Designate your Trust as a beneficiary of the asset. By designating your Trust as the beneficiary of your financial accounts, funds are transferred to your Trust upon your death. Subsequently, these funds are distributed pursuant to your Trust’s terms. This type of designation permits more comprehensive/complex distributions such as: (1) cash distributions to issue of predeceased beneficiaries; (2) discretionary distributions for beneficiaries with money management issues; or (3) managed distributions for beneficiaries receiving government benefits (which may be jeopardized upon receipt of a lump-sum distribution).
Designate individuals as direct beneficiaries of the asset. Designating individuals as direct beneficiaries of your financial accounts facilitates the direct transfer of funds from you to your beneficiaries (bypassing both probate court and your Trust). This method is efficient and effective. However, it lacks the flexibility offered by the above method.
While this humble guide offers a plethora of useful information, it is by no means comprehensive. Thus, it is important to regularly review your assets, with the assistance of an attorney, to ensure that your current management system reflects your needs and goals.