There’s a Trust. What now?

There’s a Trust. What now?

First of all, there is a big difference between a Trust and a Will.

A Will is a general “testamentary” document that contains instructions about how all of an estate’s assets should be managed.

A Trust is a more specific document that effectively creates a legal entity into which property may be transferred. The Trust document then dictates how that specific property is managed. In other words, any property held by a valid Trust will not need to be managed according to a Will.

So, what happens if a family member passes away with a Trust? If the Trust is valid, the Trustee can simply transfer the assets held in the Trust to the beneficiaries thereof. No probate proceedings would be necessary to transfer those items held in the Trust.

Things are not always so straightforward, though. From time to time, people neglect to transfer property into a Trust that they created. So, what happens to that property that was not transferred into the Trust? Well, hopefully there was also a Will in place, because any property not managed by the Trust will then need to be managed by a Will and probate proceedings. Further, if there is no Will in place, then that additional property will have to be managed by more expensive and complicated probate proceedings. This is why it is always recommended to have a Will, even if you also have a Trust. A Will serves as a critical “backup,” and, in the vast majority of circumstances, any good estate plan that includes a Trust will also include a Will.

In summary, when a family member passes away, it is necessary to evaluate the estate’s assets, the estate plan documents, and determine the easiest way to transfer everything according to the available possibilities. With a valid Trust in place, the “easiest way” is usually as simple as a deed, title documents, or direct financial account transfers. With only a valid Will in place, the “easiest way” usually involved probate proceedings.

As a related note: What are the advantages and disadvantages of Wills and Trusts?

To very briefly and generally answer that question, a Will is usually inexpensive to create. Further, probate costs will be incurred by your estate after you pass away. In other words, you can actually defer any significant property transfer expenses until after you die. Many people prefer this so that they can use their money while they are alive.

A Trust, on the other hand, is significantly more expensive, and a Trust is something that you must pay for upfront. Therefore, financially, you incur significant expenses right now, during your life, to manage property distribution matters that will occur after you pass away. Further, as mentioned above, many people with Trusts neglect to update their Trusts and/or fail to transfer newly-purchased property into that Trust. As a result, these families pay not only for a Trust, but they also have to pay for probate. All of this can get quite expensive.

When everything is done properly, though, a Trust is a reliable method to avoid probate, and some families prefer that option. On the other hand, Texas has outstanding probate laws that provide quick, relatively inexpensive, and efficient probates proceedings, so, for some families, probate is not something that needs to be avoided at all.

Ultimately, it comes down to your personal choices and the estate planning strategies that you would like to adopt for your family.