Trusts

Does a Trust Avoid Probate? 5 Key Considerations

By
Dominion
Updated:
August 8, 2024
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8 min read
Contents

Most Americans use trusts for estate planning and inheritance distribution purposes. If you've ever looked into trusts yourself, you've probably heard the claim that a trust automatically avoids probate.

Of course, things are rarely as simple in real life as they appear to be from research or as they seem from an offhand comment. Today, let's explore which trusts can help you avoid the probate process and break down some key considerations you should keep in mind.

Trusts and Probates Quickly Explained

Before we continue, let’s break down some basic definitions:

  • A trust is a fiduciary arrangement between you, the grantor, a trustee, a third-party manager and administrator for the trust, and any beneficiaries. When you put assets into a trust, you give up ownership of those assets (in a sense). 

The trust documents – at least for estate planning or family trusts – outline which beneficiaries get which assets, which can include liquid capital, real estate, or other property

  • Probate is a legal process that automatically occurs whenever a person dies and leaves assets that must be distributed to beneficiaries or inheritors. Think of probate as the reading and administration of a deceased person’s last will and testament. If there’s any confusion or uncertainty about who gets what, probate will settle it

Unfortunately, the probate process can be time-consuming and even costly. Executors must be named to oversee the will and guide it through the probate process. Furthermore, the probate process makes all asset and wealth transfers a matter of public record.

For instance, if you have a very wealthy estate and pass on several million dollars to your children, that information will become known to anyone who’s interested. That could potentially make them a target for creditors or lawsuits later down the road.

Because of the public nature of probate, in addition to the lengthy timeline and fees, many people want to avoid probate at all costs. Trusts can help you do just that.

So, Do the Assets in a Trust Go Through Probate?

Generally, no. But that’s not always true!

Most assets in a trust don’t go through probate because they have already been assigned by the grantor. When you set up a trust for estate planning, for example, one of the things your lawyer will ask is who gets what in your estate. You’ll be asked to assign ownership of your real estate, liquid capital, or anything else you place in the trust.

Then, once you pass away, the trustee automatically passes ownership of those assets to the people you previously named. In essence, a trust eliminates the core need for probate by settling questions probate would answer.

Now, here’s the thing: while the goal of a trust is to sidestep probate court, it’s not always a slam dunk. If you don’t dot your i’s and cross your t’s when setting up the trust, or if you forget to transfer ownership of specific assets to the trust, you might find yourself in probate court after all.

Remember, you have to individually transfer the ownership of each asset from your name to the trust’s name. Also, what about new assets you acquire after setting up your trust?

They need to be transferred to the trust, too. If not, those assets could end up in probate limbo after you’re gone. To avoid this headache, make it a habit to transfer ownership of new assets to the trust as soon as you get them.

Key Probate-Related Considerations When Setting Up a Trust

Now let’s break down some key things you should always keep in mind when setting up a trust or deciding what kind of trust vehicle is right for your overall goals.

Trusts Normally Don’t Go Through Probate

As stated above, trusts normally don’t go through the probate process. Therefore, if you want to set up a trust and are worried about assets within going through probate, all you have to do is make sure that you explicitly and clearly define:

  • Which assets you want to pass on to beneficiaries or inheritors
  • How the assets should be passed on or distributed
  • When the distribution should take place

Naturally, so long as you work with an attorney who knows this industry, it shouldn’t be a problem. When you work with Dominion, we’ll make sure your assets get distributed to the right people at the right time and in the right amounts, all without having to worry about probate at all.

Your Trust Must Be Set Up Correctly

However, assets within a trust might go through probate under two different circumstances. The first of these is if your trust isn’t set up properly.

Again, you won't need to worry about this if you set up your trust with the experts who know what they're doing. But if you get your trust set up by a less-than-stellar attorney and legal team, they might not draft the trust language correctly, or they might miss a few legal loopholes.

If this happens, property within the trust might still be required to go through the probate process just to make sure property and assets are distributed legally and according to your intentions (as best as the executor or administrator can tell, at any rate).

The Trust Must Be Valid

The second instance in which your trust might go through probate is if it is invalid. Similarly to it not being set up correctly, if the trust or the property within is deemed invalid, it’ll have to go through probate.

As an outlandish example, say that a person steals a car, then places ownership of the car in their trust and says their son gets the car when they pass away. Since they didn't legally own the car in the first place, car ownership claims are invalid, and the car has to go through probate.

Once more, though, if you set up your trust with the right attorneys, you won’t need to worry about this whatsoever.

Testamentary Trusts Always Require Probate

Testamentary trusts are those that you create while you are still alive, but they only execute after you pass away and your will is read and executed. Through a testamentary trust, property has to pass into the trust after being named and assigned by the will – the will and trust operate together, in a sense.

Therefore, testamentary trusts always require probate, though technically testamentary trusts themselves don’t go through the probate process. Only the property that goes into testamentary trusts goes through probate. You can speak to your attorneys about whether a testamentary trust is necessary or wise for your estate management goals.

Offshore Asset Protection Trusts Are the Best Tools to Avoid Probate

So, since most trusts do avoid probate, you don’t normally need to worry about this process interrupting your inheritance plan or asset transfers to future beneficiaries. However, offshore asset protection trusts are still the ideal vehicles if you want to guarantee that your assets never get near probate.

That’s because asset protection trusts – just like other trusts – can require you to assign ownership and inheritance to assets that you place within them. Even better, however, offshore asset protection trusts are subject to different laws and rules compared to your home jurisdiction or country.

Thus, the assets within are protected within a legally ironclad fortress. Not only are your assets protected from probate, but they are protected from any other potential legal attack that might come after your beneficiaries.

If you want to maximize how much of your estate gets passed to your beneficiaries or descendants, the best way to do so is with an offshore asset protection trust put together by reputable attorneys at Dominion.

Get in Touch with Dominion Today

As you can see, most trusts do avoid probate, but it's far from a universal rule, and you'll want to consider your trust setup strategy carefully to make sure your estate isn't subject to the probate process unnecessarily. Dominion can help you with this and much more.

That's because we're the experts when it comes to asset protection, preservation, and management for high-net-worth individuals just like you. Whether you want to safeguard your assets against legal threats like lawsuits or ensure that your fortune is still intact by the time your beneficiaries are ready to claim it, we can provide invaluable assistance. Get in touch with one of our representatives today to learn more.

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