Only about 32% of American adults have a will. When you don’t have a will prepared, the court assigns an administrator to carry out the task of appraising your assets and property and paying off any debt you might have.
However, if you have one prepared, it will have to go through probate, and the court and lawyers will get involved. Because this is a tedious process, you may be looking for a way to get around it, and you’ve come across information about trusts.
But does a living trust avoid probate? Keep reading to find out.
The Difference Between a Will and a Trust
The main thing that differentiates a will and trust is that a will only allows a person to pass down their estate until after they pass away. This is the case because a will is written in a person’s name, which is why legal action is required to transfer their assets to their beneficiaries.
The trust, however, is not written in a person’s name. When a person puts their estate into one, they only have control over it if they are the trustee. Often the trust maker is the trustee until they pass away. However, unlike with the will, the trust maker can hand their assets over to another trustee before they pass away.
Despite the myths you may hear about living trusts, the only taxes the trustee needs to pay is for the interest the trust accumulates. The trustee does not need to file a separate tax return; they can use their personal income tax form instead. Furthermore, if the beneficiary decides to take money out of the 401k or the retirement savings, the government will tax them.
As for the will, the government requires that you fill out an estate tax only if yours is worth more than 11,700,000. It depends on individual state laws as to whether they consider inherited assets taxable.
Does a Living Trust Avoid Probate?
Unlike the will, a living trust does allow you to skip the probate. The trust maker will have appointed someone, usually a family member, to take over their estate and distribute their assets as written in the trust. The trustee will then ensure that all assets get passed down to the correct beneficiary.
This method saves the family an immense amount of time, money, and stress. It can take months before the court decides if a will is valid, and if someone in the family contests the will, it might take close to a year to settle the case. You would also need to hire attorneys during this time, most of whom charge by the hour or request a flat fee upfront.
With the living trust, the time it takes to sort out the deceased person’s estate and distribute their assets to their beneficiaries is much quicker. The fact that nobody can contest the trust contributes to the process’s speed.
Irrevocable trusts, which you cannot change once you create one, can avoid probate as well. The only reason a trust will go to court is if an asset is missing from it. A judge will get to decide how to distribute that asset to the beneficiaries.
Create Your Trust
Now, you no longer have to ask yourself does a living trust avoid probate? Instead, you can go ahead and create one, ensuring that your beneficiaries will receive your assets without having to go through the hassle of going to court.
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