My parents called me the other day and wanted to talk about a sensitive subject. One that is sad to discuss with people you love. The subject was their home, assets, and what would happen to them after they pass away. Being in real estate, I am familiar with probate and what a time-consuming hassle it usually is. Most people may not know what probate is although they have heard the term.
Probate is the process of distributing your assets after your death. The person you named in your will as executor or, if you die without a will, the person appointed by a judge files papers in the local probate court. The executor proves the validity of your will and presents the court with lists of your property, your debts, and who is to inherit what you’ve left. Then, relatives and creditors are officially notified of your death. Your executor must find, secure, and manage your assets during the probate process, which commonly takes a few months to a year.
Depending on the contents of your will, and on the amount of your debts, the executor may have to decide whether or not to sell your real estate, securities, or other property. For example, if your will makes a number of cash bequests but your estate consists mostly of valuable artwork, your collection might have to be appraised and sold to produce cash. Or, if you have many outstanding debts, your executor might have to sell some of your property to pay them. Real estate is a very common asset that can be handled poorly by the wrong person. I have seen this issue tear families apart more than once. How can you avoid it though? I will explain a little later.
In most states, immediate family members may ask the court to release short-term support funds while the probate proceedings lumber on. Then, eventually, the court will grant your executor permission to pay your debts and taxes and divide the rest among the people or organizations named in your will. Finally, your property will be transferred to its new owners. I don’t need to remind you for the umpteenth time that this is a drawn out and painful process. It can get ugly very quick with family members.
My parents informed me that they have a living trust and that it specifies their wishes upon their demise. It is a very clear way to make sure that your desires are clearly carried out. A living trust is a written legal document through which your assets are placed into a trust for your benefit during your lifetime and then transferred to designated beneficiaries at your death by your chosen representative, called a trustee or successor.
One of the first benefits of a living trust is that it avoids probate. With a valid will, your estate will go through probate, the court proceedings through which your assets are distributed according to your wishes by the executor. One big difference between a will and a trust is the level of privacy offered with a living trust. As a living trust is not made public, upon your death, your estate will be distributed in private. A will, on the hand, is public record and so all transactions will be public as well. Having an open conversation about the wishes of your parents or elder people you live is something that may not be comfortable, but it can avoid a lot of pain, confusion, and heartbreak in the future. I suggest you have the conversation with anyone who you think may need it.