Probate and Trust Basics

Probate is a court-supervised procedure intended to wind up the affairs of a deceased person, pay creditors (if any) and eventually administer and distribute assets of the deceased person. There are many horror stories related to probate and therefore probate often gets a bad reputation, both in Utah and elsewhere. However, the reality is that a great many, if not most, probates in Utah are administered relatively smoothly and without incident. The potential difficulty, on the other hand, is that there are no guarantees with a probate and these can be quite unpredictable, as with any other court proceeding. One of the most misunderstood aspects of probate is that it is a public court proceeding.

This public nature of probate, by itself, is one of the major reasons why some people choose to avoid the same. It is also true that choosing the route of probate can also result in significant professional fees and long delays, but again, much of the time this is not the case. Therefore, when you are considering your estate planning options, you should consider the cost and time aspect, but you might want to focus more on the public nature of probate and the fact that through this process other individuals (attorney, judge, accountant, personal representative, etc.) will be involved with your personal matters, in a public forum, and will therefore be making decisions and taking actions on your behalf. This is not necessarily a bad thing, but again, many people elect to avoid the probate process all together, for various reasons, including the factors noted above.

How can you avoid probate? That is an excellent question! Please contact us to learn more.
A revocable living trust is legal entity established under applicable state law (in that regard, it is similar to an LLC or a corporation) by the maker of the trust during his/her life—hence the name “living”. This is distinguished from a testamentary trust, which is a trust established after the death of a person under the instructions of such deceased person’s will. Thus, a Utah revocable living trust is established under applicable Utah law, specifically the Utah Uniform Probate Code.

The word revocable indicates that this type of trust can be revoked (i.e. terminated) and/or amended during the life of the trust maker (sometimes known as the “Trustor” or “Grantor”). When a revocable living trust is established and maintained properly, it can be a very useful and valuable tool to provide many protections and benefits to the trust-maker during life and also provide a means of an orderly distribution of such trust-maker’s assets, both during life and after death. These types of trusts are often used primary for probate avoidance, but in order to accomplish this desired objective, such trusts must be properly established and maintained. There are a great many individuals who have a revocable living trust, who intend to realize all of the possible benefits such a trust can provide, but who in fact stand to obtain no such benefits because their trust has not been “funded”—this means that the assets that were intended to be administered and protected by the applicable trust are not legally connected to such trust. This reality occurs far too often and for many reasons. When we review an existing trust, the very first questions we ask and examine center around this all important trust funding issue.
A living trust provides a mechanism whereby you can obtain benefits and protections during life and also following your passing. These “during life” protections are one key distinction between a living trust and a Will. By operations of law, a Will is effective only after death. Among such “during life” protections afforded by a living trust is the ability to clearly designate what happens to your property in the event you become disabled and are not personally able to manage your assets.

A living trust that is properly established and maintained over time can also provide many other benefits, including the ability to totally avoid the probate process, including the public nature, delay and costs that can be (but are not always) associated with probate. To clarify, probate is always a public proceeding and if a Will goes through probate, it will be a public record that is accessible by others. On the other hand, probate in Utah is often a fairly streamlined process and the costs associated with such a probate can be reasonable. However, there are no guarantees with probate and there is always a chance, even if small, that your probate could become messy, long and problematic. Many people reasonably determine they simply are not willing to take that chance and therefore such individuals base there estate planning around a revocable living trust (among other estate planning tools).
The short and simple answer to that question is no. After you establish your revocable living trust and then transfer your assets into the same (those assets that should be transferred into the trust—not all of your property falls into this category and some assets should NOT be transferred to your trust), you will then still have total control over such assets. Imagine that your revocable living trust is like a safe that you build in the basement of your home for the intended purpose of safeguarding your valuable assets. As the “maker” of the trust, you decide that the trust will be revocable during your life and legal capacity (i.e. while you are legally competent—able to make decisions for yourself and with regard to your property). This would be like you retaining the combination to the safe. In this scenario, you would have total freedom and legal authorization to put your property into your safe and you would also retain total freedom to remove any and all of your property at any time—the choice is yours and nobody can stand in your way. There are other types of trusts which can limit your ability to access the property you elect to put into such trusts (these other types of trusts are sometimes called “irrevocable” or “asset protection” trusts) but those types of trusts are different from what we are discussing here. Again, with a revocable living trust, you decide what property goes into such a trust and who has access to such property (and when).

Your revocable living trust is your “alter ego” for tax purposes and therefore you do not get a new tax ID for your trust (no new EIN). Likewise you do not report your revocable living trust on your Form 1040 when you do your taxes. Finally, even after you put your real estate into your revocable living trust, such a transfer is normally not a taxable event and even though the county recorder’s annual statements would then show your real estate as being owned by your trust, your tax bill would not change.
No, in fact, in most instances, you should NOT transfer all of your assets to your trust. Among the items that should almost never be transferred to your trust during life are IRAs, Keoghs, 401(k) accounts and most other retirement accounts, as well as many types of annuities and life insurance policies. For these assets, you can still use your living trust as an eventual conduit for the same, but rather than transferring ownership into your trust during life, you will name your trust (or individuals) as the beneficiary of such assets, depending on your circumstances and your desired outcomes with regard to such assets and persons. While bank accounts are typically retitled into the name of your trust during your life, you may also elect to establish “payable upon death” arrangements with regard to such accounts.

As with most estate planning matters, this is NOT one-size-fits-all stuff. Rather, you should seek the advice of a competent estate planning attorney who can guide and direct you through these important determinations. Since we are talking about you, your loved ones and your property (i.e. things closest to your heart), you don’t want to “wing it” and likewise you don’t want to rely in getting lucky and simply “hope” that you get it right.
Federal law prohibits financial institutions from calling or accelerating your loan when you transfer ownership of your home to your living trust (technically, you actually transfer title to yourself, as trustee of your trust) as long as you continue to live in that home and assuming you have a revocable living trust. An exception to this rule, enacted as part of the 1982 Garn-St. Germain Act, states that this rule does not provide such protection for residential real estate with more than five dwelling units. However, this exception is limited in its application, particularly here in Utah. In short, unless your home is part of a multifamily structure of more than five dwelling units, you can put your home into your revocable living trust without concern that the lender is going to increase your interest rate or call your loan.