Living Trust vs Will

What is probate?

Imagine yourself the ruler of an island. When a citizen passes, would you want a system in place to validate Last Wills, ensuring debts are repaid and assets are distributed to the right people?

Above is a simple probate analogy. It is not a tax, it is a process to ensure that repayment of debts and distribution of assets are handled in a civilized way.

Probate costs

The cost and length of probate depends on factors such as:

The size of your estate

The type of assets in your estate

What state you live in

If someone contests your estate

Whether an attorney is used

Actual court and filing fees are often just several hundred dollars. Some estates are small enough that attorneys are not needed. Some states, such as Texas and New Jersey offer quicker and simpler probate than other states.

Debts & creditors

Debts are typically not passed on to children or beneficiaries. Creditors must be repaid before distribution of the estate. Probate makes the repayment process easier by offering a limited time for creditors to make a claim, an advantage over a living trust.

Common probate assets

Real estate is the most common probate asset. If you have property in multiple states, you will likely have probate in those states.

Bank accounts and investments without POD (payable upon death) designations or beneficiaries are subject to probate.

Safety deposit boxes are subject to probate.

Personal property, like art, automobiles collectible, electronics, furniture, jewelry, etc., may be subject to probate.

Some assets avoid probate

Not all assets go through probate. Assets with designated beneficiaries avoid probate, such as

IRAs

401(k)s

Life insurance

Annuities, as long as the beneficiaries listed are still living.

Bank accounts with a named POD (payable upon death) beneficiary avoid probate.

Real estate using a beneficiary deed avoids probate. A drawback is potentially having to redo the deed if a beneficiary predeceases the owner of the property. If you outlive all the beneficiaries on the deed and forget to update the deed with new beneficiaries, the property will likely go through probate.