This article is the third in a series of nine articles explaining the Eight Goals of a Good Estate Plan. In this article we will discuss using a trust to ensure that your estate avoids probate when you pass.
A probate case consists of court oversight of the distribution of the assets of an estate to creditors and heirs. If probate is required for a particular estate, the executor of the estate cannot simply sell the real estate owned by the deceased individual or distribute the deceased individual’s bank accounts to the estate’s heirs.
Rather, the executor must hire an attorney to prepare a petition for issuance of letters of office along with several accompanying documents. This is a petition requesting that the probate court enter an order, called letters of office, appointing the person who would be executor to the position of executor. Notice of the petition must be served on all potential heirs. Often, the executor will be required to pay a bond to the court to ensure proper administration of the estate.
After the court issues letters of office the executor, the executor will be able to use the letters of office to liquidate the assets of the estate (e.g. close out bank accounts and sell real estate). However, the executor will not be able to immediately distribute those assets to the heirs.
First, the executor must mail notice of the probate estate to known creditors and publish notice to unknown creditors in a local newspaper for three consecutive weeks. Creditors will then have 6 months to file claims.
After the 6 month claims period has expired, the executor must present a final accounting of the estate’s assets and liabilities to creditors and prepare a final report for the court. Notice of the hearing on the final report must be sent to all interested parties, after which a hearing on the final report will be held by the court. Once the final report is approved by the court, the assets can be distributed by the executor to creditors and heirs, and the probate estate can be closed. This usually takes place approximately a year after the probate estate is opened.
Probate is bad for three reasons:
According to Illinois law, an individual’s estate must go through Probate if either:
A common misconception is that a simple will will allow your estate to avoid probate. This is not the case. A will can ensure that your assets are distributed appropriately in the probate case, but your case will have to go through probate with or without a will. A better estate planning option for individuals who own real estate or have a savings account is to use a revocable living trust either in place of or in conjunction with a will.
Probate can be avoided by executed a revocable living trust and transferring your real estate and savings accounts into it during your lifetime. A revocable living trust is a legal entity that can own property. It typically provides that the creator of the trust has complete control over the property owned by the trust during his or her lifetime, and describes how the trust assets will be distributed after the creator’s death.
During your lifetime, there is no practical difference between property owned by you as an individual and property owned by your trust. However, when you pass away, property that is owned by your trust at the time of your death is not considered part of your estate..
So, we can avoid probate by taking the following steps:
If, when you pass away, you own no real estate outside of a trust and less than $100,000.00 in non-real estate assets outside of a trust, then the trustee of your trust can simply download a one-page form called a Small Estate Affidavit from the probate court’s website. This form can be completed without an attorney. The affidavit simply states that there is a trust in place, that the person filling out the affidavit is the trustee of that trust, and that there is no real estate and less than $100,000.00 in non-real estate assets outside of the trust.
Once your trustee signs this affidavit before a notary, the trustee can then use this affidavit to immediately liquidate accounts and distribute assets to creditors and heirs. The time delay and cost of probate, as well as the headaches associated with it, will be avoided.
O'Flaherty Law is happy to meet with you by phone or at our office locations in: