When you are structuring your estate plan, you have the option of establishing a will or a revocable trust (also referred to as a living trust). While both include language that will adequately dispose of many of your assets, the revocable trust offers the benefit of avoiding the probate process at your death.
The primary probate proceeding occurs in the county of the state of residence at the time of your death. If you own real estate in another county (either in your state of residence or another state), your estate could be subject to probate in that county. The probate laws vary from state to state. In South Carolina, the probate process involves many steps including filing in the probate court of the original will, a petition to have a personal representative appointed, an inventory listing certain assets with their values, an accounting showing the receipts and disbursements of the estate, proof that a notice has been sent to the beneficiaries and potential beneficiaries, and an application for settlement. The probate process is a public proceeding and usually takes a minimum of nine to twelve months from date of death. It could take longer depending upon the complexity of the estate and whether a federal estate tax return is required to be filed with the Internal Revenue Service. Additionally, the probate court in South Carolina charges a fee of approximately 0.25% on the value of the probate assets.
With a revocable trust, you reserve the right to change the terms of the trust at any time and always have access to and control over the assets of the trust. You should designate the initial trustee who controls the assets of the trust. In most instances, you will serve as the initial trustee unless you would like to name another individual or institution. The revocable trust should include a list of successor trustees to serve in the event of death or incapacity. Having a successor trustee to serve is another benefit of a revocable trust since there is a mechanism in place for the management of assets during incapacity.
Additionally, the revocable trust should include language that designates the intended beneficiaries of the assets upon your death.
Once a revocable trust is signed, it is important to change the title of certain assets so probate may be avoided on the assets owned by the revocable trust. Such assets include brokerage and bank accounts, real estate, tangible personal property, and interests in limited liability companies, partnerships, and closely-held corporations. There is no separate tax reporting for the revocable trust, and it uses your social security number as the tax identification number.
Certain assets are not subject to probate such as accounts owned joint tenants with right of survivorship1 and life insurance, annuities, qualified retirement plans, and IRAs of which the beneficiary designation form does not list the estate as the beneficiary.2 An estate plan that implements a revocable trust should include a will to properly dispose of assets that are not titled in the name of the revocable trust. This type of will is commonly referred to as a "pour-over" will since the revocable trust is usually the beneficiary of the probate assets passing under the will.
Implementing a revocable trust and changing the title of certain assets to the revocable trust will offer the benefits of avoiding the probate process, maintaining privacy, and providing a management mechanism in the event of incapacity. Even if you have a revocable trust, it is advisable for you to review the title of your assets to ensure that the appropriate assets are titled in the name of the revocable trust so that probate can be avoided.
1 There could be reasons not to have accounts titled in this manner even though they are not subject to probate.
2 It is important that you properly list the primary and contingent beneficiaries of these assets on the beneficiary designation form. Your estate should not be named as the beneficiary.
Article originally published in Furman University's The Advisor newsletter, 2015 Issue and is posted with the permission of Furman University. Visit www.furman.edu.