Do Trusts Avoid Probate? An Overview of the Process

Certain types of trusts, when properly established and funded, can avoid probate. Probate is the court-supervised process for validating a will, paying debts, and distributing a deceased person’s assets. A trust, on the other hand, is a legal entity that holds and manages assets for beneficiaries, offering a private and more efficient alternative to the public probate system.

The most common type used for this is a revocable living trust. This arrangement allows you to transfer assets into the trust during your lifetime while maintaining control over them. Because the trust is a separate legal entity, the assets it holds are not part of your personal estate upon death. The trust’s own documents dictate how assets are distributed, allowing them to bypass probate.

The Probate Process Explained

Probate is the default process for settling an estate when assets are held solely in a deceased person’s name. The process begins when an executor files a petition with the local court, initiating a formal proceeding to authenticate the will and appoint the executor.

People seek to avoid this court-supervised process due to its time, cost, and lack of privacy. A probate case can take nine months to two years to complete, during which assets are often frozen. This delay can create financial hardship for family members who may have been dependent on the deceased.

The costs, including court filing fees, appraisal fees, and attorney fees, can consume 4% to 7% of the estate’s value. Finally, probate is a public process, meaning the will and a detailed inventory of assets become public records accessible to anyone.

How Trusts Bypass Probate

A trust bypasses probate through the transfer of legal title. When you fund a trust, you retitle assets from your individual name to the trust’s name, such as changing a bank account from “Jane Doe” to “Jane Doe, Trustee of the Jane Doe Revocable Trust.” Because you no longer personally own these assets at death, they are not part of your probate estate.

In a revocable living trust, three roles are established: the Grantor, the Trustee, and the Beneficiary. Initially, you as the Grantor also act as the Trustee (managing the assets) and the Beneficiary (benefiting from the assets). This structure allows you to retain full control, with the ability to change, amend, or even revoke the trust at any time.

The trust document also names a “successor trustee” to take over management upon your death or incapacitation. This successor trustee is legally bound to follow the trust’s instructions, which includes paying final debts and distributing the remaining assets to the beneficiaries without court intervention.

Required Steps to Fund a Trust

A trust document alone does not avoid probate; the trust must be “funded.” Funding is the process of transferring legal title of your assets into the trust’s name, as any assets left in your individual name will still be subject to probate.

For real estate, you must prepare and record a new deed, often a quitclaim or warranty deed, that transfers the property from you as an individual to yourself as trustee. The new deed must be signed, notarized, and filed with the county recorder’s office, and it is wise to notify your homeowner’s insurance company of the change.

Transferring financial accounts like checking or brokerage accounts requires you to contact each institution. You will need to retitle the accounts in the trust’s name, which involves completing new paperwork and providing a Certificate of Trust to prove the trust’s existence.

For tangible personal property without a formal title, such as furniture or jewelry, you can use a “General Assignment of Property.” This document lists the items being transferred and formally assigns their ownership to the trust. It should be signed, dated, and kept with your trust documents.

Assets Not Controlled by a Will or Trust

Some assets are designed to pass to heirs outside of both probate and a trust. These assets are transferred directly to a named person based on a contract or by operation of law, and these designations supersede any instructions in a will or trust.

The most common examples are assets with beneficiary designations, such as life insurance policies, annuities, and retirement accounts like 401(k)s and IRAs. The designation on file controls the distribution, and the assets pass directly to the named individuals.

Bank and brokerage accounts can also be set up with Payable-on-Death (POD) or Transfer-on-Death (TOD) designations, allowing funds to be transferred directly to the person you name. Another form of ownership that avoids probate is Joint Tenancy with Right of Survivorship (JTWROS), where upon the death of one owner, the surviving joint owner automatically absorbs the deceased owner’s share.

Trust Administration After Death

When the grantor of a funded trust dies, the process of trust administration begins. The successor trustee named in the trust document assumes legal responsibility for managing the assets and carrying out the grantor’s instructions. This process is more efficient and less costly than court-supervised probate.

The successor trustee’s first duties are to secure all trust assets and obtain certified copies of the death certificate. The trustee must then identify and notify all beneficiaries named in the trust, as required by its terms and state law, which often involves providing them with a copy of the trust document.

Next, the trustee is responsible for paying the decedent’s final debts, taxes, and administration expenses. This may involve preparing the decedent’s final personal income tax return (Form 1040) and an income tax return for the trust (Form 1041). Once all obligations are met, the trustee distributes the remaining assets to the beneficiaries, and the trust can be terminated.