People often wonder about probate court. probate court is simply a branch of the court system. You may have heard of Divorce Court, Bankruptcy Court, Criminal Court, Juvenile Court, Etc. These are all "branches" of the court system, and probate court is simply one of those branches.
The probate court not only handles post death matters dealing with the distribution of assets, but probate court also handles post death disputes between families, beneficiaries, etc. People could be fighting about something as simple as who was supposed to get Grandma's vase! Sometimes, people are arguing about more important matters - like why they were written out of the estate plan or why they got a lesser percentage than they thought they should get.
The probate court judge essentially serves as a referee, making decisions about many post-death matters. Depending on the size of your estate, and whether or not you have any estate planning documents (such as a living trust), the probate court may have to get involved in your affairs. After all, your assets may not "magically" transfer to your beneficiaries.
In some cases, some assets will simply pass by way of a designated "beneficiary." Typical examples of such assets include life insurance policies and retirement accounts. The only thing required on such assets is an appropriate beneficiary designation. This is accomplished by designating one or more beneficiaries on a form that is provided to you by the retirement account company or the life insurance company. Usually there will be a "primary" beneficiary and then a "secondary" or "contingent" beneficiary. They don't care what your will or living trust says. All they care about is who is on the beneficiary form.
Speaking of beneficiaries, you can also name beneficiaries on certain bank accounts. If all your assets simply pass by beneficiary designations, the probate court doesn't have to get involved at all. While beneficiary designations are convenient, they don't go as far as a living trust might go and certainly don't provide as much guidance and protection for your beneficiaries. However, in some cases, naming a beneficiary is the most efficient path to take.
Avoiding Probate Court may involve a combination of tools - such as a living trust and appropriate beneficiary designations. All you have to do is examine each asset that you have and make sure that it passes to your heirs one way or the other - there is no perfect solution - that's why it's called an "estate plan" and NOT an "estate fool-proof plan."
In many cases, a living trust would be a better solution. In other cases, naming beneficiaries is best. Finally, in many cases, a simple will might be all your need. What the best method/s might be in your particular situation is part of the planning process. It is usually a combination of methods that will help achieve the best result. Sit down with an estate planning attorney and focus on which methods would be best in your situation. Avoiding probate is great, but it's better if you really know what you are doing and the pros/cons of each approach.
When I meet with clients for the first time, they are often surprised to learn there is so much more to an estate plan than a living trust. They think the living trust IS the estate plan. I explain that the living trust is the main tool of many estate plans, but there are many other tools in the estate planning toolbox. One of the most common tools is the "pour over will" that accompanies the living trust.
Clients ask, "Why do I need this will if I have a trust?" Well, the will is a special kind of will known as a "pour over will." The primary purpose of this kind of will is to serve as a back up to your living trust. If one or more assets are not in the name of your living trust, then probate might be necessary. Probate is the legal process by which the court supervises the transfer of assets. During the probate process, the judge will want to see the will because it simply tells the judge where you want your assets to go. If you have a "pour over will," then your will essentially directs the judge to "pour" all your probate assets into your trust. In other words, your will basically states, "Judge, if I forgot to put one or more of my assets into my trust, please do so." Therefore, if you have a living trust, you will need a pour over will as a back up.
If you want to learn more about estate planning and the legal tools available to protect your family, call (661) 414-7100 to schedule a consultation.
A client recently came to my office to help him with his mother's estate. She passed away earlier this year, and he was trying to distribute all the assets according to her living trust's instructions.
During the distribution of the estate, my client discovered his mother got a "reverse mortgage" on her house about 3 years ago. In order to facilitate the loan, the lending company took the house OUT of my client's trust and put it into her name alone. Some lending institutions still insist on doing things this way. I'm not sure why some lenders are more sophisticated than others, but some insist on doing things the "old fashioned" way.
So what did they do? After they put the home in her name and got the reverse mortgage in place (and presumably got their fees), they left the home OUT of the trust. When she died, the house was only in her name, thereby forcing the family to go to court. If the house had been titled in the name of the trust (as it should have been), my client's family would have been able to avoid the probate court system altogether.
So what is the lesson learned? If you are entertaining a refinance, or you are in the middle of one, make sure your lender doesn't leave you out in the cold.
If they are going to start the job, they should also FINISH the job and put your real estate BACK into your living trust.