One of the primary goals of a good estate plan is to avoid the necessity of a probate case when you pass away.  In this article, I will explain what probate is, why it is bad, and how we can use an estate planning tool called a Revocable Living Trust to avoid it.

What is Probate?

Probate is a court case that is sometimes necessary when individuals pass away.  In a probate case, the court will oversee the administration of the estate, resolving any disputes among creditors or heirs, and approving the collection of estate assets and distribution of those assets to the estate beneficiaries.

When is Probate Necessary?

Probate is necessary in Illinois whenever an individual passes away owning:

  1. Any real estate outside of a trust, unless the real estate is owned jointly with another person who has an automatic right of survivorship stated in the deed; OR
  2. More than $100,000.00 in non-real estate assets outside of a trust or a payable-on-death account with a living named direct beneficiary.

If either of the above is true when you pass, a probate case will be required, even if you have a will, in order to give your loved ones the power to collect your assets and distribute them to heirs and creditors.

Why is Probate Bad?

We typically want to avoid probate when possible for three reasons:

  1. In a probate case, your assets will be tied up for at least a year, without your beneficiaries having access to them.  This is because there is a lengthy period that the case must remain open during which creditors are permitted to file claims against the estate.  When a probate case is opened, the final court date is typically set for a year out in order to allow for this period to pass and the executor to accomplish all of his or her duties.  This is not ideal, because your beneficiaries may need immediate access to your assets after you pass.
  2. Probate cases can be expensive.  Although our firm is fairly cost-effective, most probate attorneys charge 5% to 10% of the value of the estate as a fee for handling the year-long probate case.  Court costs and the costs of publication of required notices can also be costly.
  3. Probate is stressful for the executor of your estate.  Dealing with an attorney for a year and preparing reports and notices can compound the difficulty of an already stressful time for your family.

The good news is that probate can easily be avoided using an affordable estate planning tool called a Revocable Living Trust.

How to Use Revocable Living Trusts to Avoid Probate

A Revocable Living Trust is a legal entity other than yourself that can own property on your behalf during your lifetime, and on behalf of your heirs after you pass.  It reads a lot like a will.  As in a will, you describe how you would like your assets to be distributed after your death.

In addition to providing for this distribution to the trust’s beneficiaries, you will name a series of trustees to act in the order that you list them to administer the trust for the benefit of the beneficiaries.  Trustees have a fiduciary duty to act in the best interest of the beneficiaries according to the terms that you lay out in the trust.

You will be both the initial trustee and beneficiary.  This means that your only duty is to yourself and you can do whatever you would like with the trust and its assets during your lifetime.  In fact, during your lifetime, you won’t even notice that your assets are owned by the trust, because you will have the same level of control as if they were owned in your individual name.

Once the trust is created, it must be signed before a notary (most attorneys offer this service for free).  It does not have to be filed anywhere and there are no annual fees.  After the trust is executed, your attorney will work with you to transfer your real estate and major savings accounts into the trust.

The ultimate goal will be to ensure that, when you pass, you do not own any real estate outside of the trust and you own less than $100,000.00 of non-real estate assets outside of the trust.  As long as this is true, any assets that you own outside of the trust, such as your primary checking account, your vehicles, and your tangible personal property, will be “swept in” to the trust at the time of your death.

Rather than opening up a probate case to obtain the authority to administer your estate, the trustee of your trust will download a one-page form from the probate court’s website called a “Small Estate Affidavit.”  This is a sworn statement by the trustee that he or she is the trustee of your trust, that there is no real estate outside of the trust, and that there is less than $100,000.00 outside of the trust.  Like the trust, the Small Estate Affidavit does not have to be filed anywhere.

With a copy of the Small Estate Affidavit, your trust, and your death certificate, your trustee will be able to immediately begin collecting your assets and distributing them to your beneficiaries without the necessity of hiring an attorney.  This will make the process smoother, faster, and much more affordable.

 

Guest Post By:

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Kevin O’Flaherty
O’Flaherty Law
info@oflaherty-law.com
(630) 324-6666

 

 

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Kevin O’Flaherty is the owner of O’Flaherty Law.  In Learn About Law, his weekly blog, podcast, and videoblog, Kevin explains all areas of law for non-lawyers.  In his podcast & videoblog for business owners, SeizeYourBusiness.com, Kevin interviews business owners to learn the secrets of their success.

O’Flaherty Law is based in Downers Grove, Elmhurst, and Naperville, Illinois.  Our team has expertise in many areas of law including but not limited to bankruptcy law, business & corporate representation, civil litigation, criminal defense,estate planning, divorce & family law, immigration;probate, guardianship & elder law; and real estate law.