Estate planning alternatives to probate
Although readers may know that a will generally requires a decedent's estate to go through probate, they may have questions about how unpaid bills or other unpaid debts will be addressed in that process. In some cases, the administrator of the estate may choose to liquidate only certain assets, in order to pay off obligations.
When a person dies, all of their real and personal property is considered to be part of their estate. However, a decedent's estate also includes all debts associated with that person. Consequently, creditors can file claims with the court during the probate process, seeking amounts that are owed to them. The beneficiaries will receive any assets that still remain after those debts have been paid.
The recent passing of Hollywood actor Paul Walker provides some lessons about good estate planning. Although the actor had a will, which required a probate filing, that was not the only estate instrument. Fortunately, Walker also had a revocable living trust for his daughter.
Property in a living trust can pass directly to beneficiaries, without the scrutiny of a probate court. However, it is up to the trust instrument to name a trustee, one or more beneficiaries, and the property to be included in the trust. The person who made the trust usually serves as trustee during his or her lifetime. After death, however, a successor trustee will take over that duty.
Readers may question why probate was necessary, considering that Walker had a trust. The answer is funding: When trusts are less than fully funded, other assets can still pass through a will. That, in turn, necessitates the involvement of a probate court.
Fortunately, an attorney can help individuals avoid the costs and delays commonly associated with probate. Trusts may be one way to accomplish that goal. Similarly, advance planning may help avoid the situation of beneficiaries discovering outstanding debts owed by a decedent's estate.
Source: Forbes, "Five Estate Planning Lessons From the Paul Walker Estate," Danielle and Andy Mayoras, Feb. 10, 2014