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The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.

As required by United States Treasury Regulations and IRS Circular 230, you are advised that this message and any documents attached hereto (unless otherwise expressly stated in such document) are not intended or written to be used, and cannot be used by you or any person, for the purpose of avoiding penalties that may be imposed under federal tax laws.

          

 

Living Trusts:
“Can we avoid him?”

Probate can take two forms. The most common form of probate is the Court process that oversees the transfer of a decedent’s assets to his or her heirs. In many states, the decedent’s will has to be filed with the Probate Court, notice of death has to be given to any creditors and an inventory of assets may have to be given to the Court. For a specified period of time, potential heirs have the right to contest the validity of the will and creditors have the right to file claims against the decedent’s estate. During this time, assets generally can’t be distributed to the rightful heirs, and Court permission may be required to make anything other than routine expenditures for the administration of the estate. Later, a detailed accounting of all the receipts and expenditures of the estate has to be prepared, and, in some cases, filed with the Court.

Finally, at some point in the future, the balance of the assets can be distributed to the heirs. Some states have a probate process known as “independent administration” that simplifies some of these procedures, but does not completely eliminate them.

“Needless to say, the probate process can become time consuming and expensive.”

The second form that probate can take is LIVING PROBATE. If someone becomes unable to handle his or her financial matters (the “incompetent”), most states require a Court hearing to appoint a guardian to manage the incompetent’s assets. Later, the guardian is required to file an annual accounting with the Court of all money collected and spent during the year, and there are often additional Court hearings if the guardian desires to make expenditures other than for routine maintenance and support of the incompetent or if assets need to be purchased or sold.

In addition, there may be a loss of control over your family’s assets because of the Court involvement. Finally, because the Court proceedings are a matter of public record, probate involves a loss of privacy over your affairs—Uncle Henry and Aunt Matilda can come down to the courthouse and find out your net worth. Can a lot of this be avoided? In most states there are two potential solutions: the Living Trust and the Durable Power of Attorney.

A living trust is a document prepared by your attorney under which you basically transfer the ownership of your assets from yourself to your trust. You can be the trustee of your trust, you are the beneficiary of your trust, and you make all decisions regarding the trust assets. There is no loss of control of any kind over your assets. It’s really just business as usual.

Upon your death, your living trust tells those who need to know who is to receive your assets, much like a will. In many states, no Court permission is required to distribute your assets, no notice must be given to anyone, and no Court filings are required. There are some legal fees to prepare the trust document (as there are to prepare a will), and sometimes there may be costs to change the name of the assets to the trust. However, legal fees generally are considerably less than would be involved in probate, and control over your assets and privacy is maintained.

If you unfortunately were to become incapable of handling your affairs, your successor trustee will manage your assets while you are incapacitated. No Court hearing is required to appoint the successor trustee, no Court permission is required to expend assets, and no Court filings are required. As in the case of death, legal fees are reduced, while control and privacy are maintained.

A more simple approach than the living trust to avoiding living probate is the durable power of attorney. If you become incompetent, the durable power of attorney gives your designated agent the same powers that a successor trustee would have if your assets were held by a living trust. Again, there is no Court involvement. However, durable powers of attorney expire upon death and do not eliminate the probate that occurs at that time.

If you are interested in learning more about avoiding probate, please contact Levun, Goodman & Cohen, LLP.

 

As required by United States Treasury Regulations and IRS Circular 230, you are advised that this message and any documents attached hereto (unless otherwise expressly stated in such document) are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws.

The materials contained herein have been prepared to provide information relating to the covered subject matter. The authors are not rendering legal, accounting, tax or other professional advice. If such advice is required, a professional advisor should be engaged.

© 2008 Levun, Goodman & Cohen, LLP

 


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