A revocable trust (or irrevocable trust) that is properly drafted and funded will avoid probate. This is the most significant and valuable feature of a revocable trust. The benefits of avoiding probate can only be appreciated by understanding what happens when an estate must go through the probate process.
If a person dies owning property, not protected by a trust, a court will supervise the transfer of that property to those people named in his will. If someone dies without a will, his property passes to his relatives in the manner set forth under the laws of his state. The actual transfer of title to the decedent’s property is carried out under the court’s supervision by a person designated in the will as the Executor of the estate. If a person dies without a will, the court must appoint an Administrator to carry out the transfer of the decedent’s property. An Executor or Administrator is known as a Personal Representative.
The Personal Representative has the responsibility to perform the following:
- Locate, inventory, and appraise all of the assets of the decedent.
- Make final payment to all of the decedent’s creditors.
- Prepare and file any federal and state death tax returns.
- Distribute the assets of the decedent’s estate according to the decedent’s will or according to state law.
The Personal Representative will almost always hire an attorney to perform this work on his behalf. The attorneys collect their fees from the estate for these services. The amount of legal fees, depending upon the state, is either a fixed percentage of the estate or is based upon what a judge determines to be a reasonable fee.
The reason that most people do not want their estate to go through probate is that this process is expensive, time consuming, and inconvenient. Attorney’s fees may range from 2 percent to 10 percent of the gross value of the estate. An estate of $1 million, depending upon the complications involved, may incur attorney’s fees of $25,000. These fees are usually based upon the gross value of the estate rather than the net value. An estate of $1 million with $950,000 of liabilities might still pay attorney’s fees of $25,000. But now this amount is 50 percent, not 2½ percent of the net value.
Second, attorneys rarely feel the same sense of urgency about completing the probate that is felt by the decedent’s wife and children. While the decedent’s family wishes to get on with things as quickly as possible, the attorney for the estate is often busy handling other matters and the time period for completing the probate may take from two to five years. Probate causes significant stress and frustration for the survivors, and avoiding the process is a legitimate planning concern.