By Attorney Ted Brown
Clients often ask me “if they need a trust to avoid probate?” And of course the answer is “no.” There are a variety of ways to avoid the hassle and expense of probate such as survivorship deeds, rights of survivorship accounts and payable on death designations. This is commonly known as a “survivorship” or “payable on death” strategy.
However, this strategy has several major limitations and potential drawbacks. The most significant is that it only allows couples to plan for one stage, or the death of one spouse, at a time. In most cases bank policy does not allow for an account to be jointly owned between two spouses and have a payable on death designation to the children after both pass.
For example, husband and wife can own an account jointly and have it set up that it goes to the survivor without probate. But policy prevents them from also designating that the account be divided among the children at the survivor’s death. Banks will allow the survivor to make that designation only after the first spouse passes. Deed rules also provide the same limitations on real estate.
This strategy will allow a couple to avoid probate at first death, but requires the surviving spouse to take affirmative steps after the first spouse passes away to do the same type of planning. Unfortunately, this second round of planning is commonly not done and the children are faced with a complex and costly probate proceeding at the survivor’s death.
Similarly, this type of planning does not avoid probate in a situation where both spouses pass away at the same time or within a short period.
By contrast, a revocable living trust allows a couple to plan for both stages at the same time. In fact, a trust is the only type of estate planning instrument that can avoid probate at the death of both spouses without requiring any additional action by the survivor. Both spouses maintain complete control over trust assets during life.
Therefore, a trust is an incredibly powerful and cost-effective method of probate planning for a couple, even with modest assets. Of course, your specific situation will dictate the best strategy for you. It is a good idea to discuss any type of estate planning strategy with a professional Elder Law Attorney.
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