Understanding Trusts and Probates: A Comprehensive Guide

Real estate properties are among the most valuable assets a person can transfer to their heirs upon death. As such, estate planning and distribution of assets are key steps in ensuring that loved ones are cared for after the death of the provider property owner. Trusts and wills are essential estate planning tools that can make this possible. This guide aims to shed some light on the difference between these two important tools and their importance in estate planning.

A trust is an arrangement whereby the property owner transfers the title and the legal authority to manage that property to another person or entity on the condition that the property is to be used for a specific purpose or the benefit of a specific person or persons.

This arrangement is written down as a trust agreement, which is legally binding on all parties involved. The person establishing the trust is called the trustor, grantor, or settlor, while the person receiving the trust property and managing it according to the terms of the trust is called a trustee. The persons benefiting from the trust arrangement are called the beneficiaries, and the property is normally called an estate.

A trust is often created in order to distribute the management and control of a large, potentially complex asset, such as a real estate property, to a person or persons who the Trustor determines.

Trusts are divided into four broad categories, each with its appropriate uses. The distinction is based on how the trust is established and governed.

In a revocable trust, the grantor reserves the right to modify, amend, or cancel the trust at any time without the consent of the beneficiaries. In an irrevocable trust, the grantor loses this right after signing the trust agreement. The only way to alter an irrevocable trust agreement is through court proceedings.

As the name suggests, a living trust is established while the grantor is still living. A testamentary trust is established in conjunction with a will, which means it goes into effect only after the grantor's death.

This type of trust is established to provide financial support for a mentally, physically, or socially incapacitated person. The purpose of such a trust is to provide financial aid to the beneficiaries while at the same time preserving their access to monetary benefits from governmental programs like Medicare and Medicaid.

A charitable trust is established to support specific charitable organizations or causes upon the grantor's death. A charitable trust can be established in such a way that it provides financial support to charity for a set period or in perpetuity. If it is the former, the trust agreement will have a definite trust term, after which the trust's principal assets are to be transferred. The beneficiary may be the charity itself, another charity, or a family member.

A will is an instrument where a person, commonly known as a testator, writes their wishes about who should take ownership of their property upon their death. The will is written during the testator's lifetime and does not take effect until the testator has passed away.

Unlike trusts, wills do not require a third party to act as an intermediary. The second difference between the two is that for a trust when the grantor dies or becomes incompetent, the property will no longer be in his name. This means probate will not be necessary to distribute the estate to the beneficiaries.

If a will is used, the property is still in the testator's name upon his death. Therefore, probate will be necessary to distribute it to the beneficiaries, except for a few specific cases. It's worth noting that in the case where there is no will or trust, the court will also determine who will inherit the estate through probate.

Probate is the process where a court oversees the transfer of an estate after the death of its owner. It involves several steps, including establishing the validity of the will, appointing an administrator in cases where the executor is unavailable, determining the beneficiaries, and then overseeing the distribution of the estate to its beneficiaries. During the last step, the executor or administrator is responsible for levying and collecting any inheritance taxes due to the federal or state government. They also settle any debts and expenses due on the property, after which they will distribute the remaining assets to the beneficiaries.

As already mentioned, probate is required to distribute an estate, with a few exceptions. The first one is if the property was held in a living trust. Other special cases include the following.

Joint ownership means that two or more persons own a single property. If the property is jointly owned by the deceased and another person, it can be transferred to the surviving owner without going through probate.

If the property is held in a transfer-on-death deed, it can be transferred to another person upon the owner's death without going through probate. For a transfer on death deed to be valid, the property must be residential, with four or fewer units or less than 40 acres of land if it is a single-family detached home.

In life estate deeds, the owner of the estate, also known as a life tenant, transfers the ownership of the property to another person, commonly known as the remainderman, while retaining the right to use it for the duration of their lifetime. This removes the need for probate as the property already belongs to the remainderman.

Are you looking for professional help with a Santa Clara County trust or probate sale? Rick Smith of RCS Property Group can help. With over four decades of experience in the Santa Clara real estate industry, Rick is a trusted and caring expert in probate and trust sales. Contact Rick Smith today for more information.