How Living Trusts Avoid Probate
Here's the lowdown on basic probate-avoiding living trusts.
Ask people why they work hard and save their money, and often you'll hear that it's not only because they want to raise their own standard of living; they want to leave something behind for their children, too. Understandably, they don't want a big chunk of that money to be used up for probate lawyers' fees.
That's where living trusts come in. They don't save you a penny while you're alive, but after death they can eliminate the need for probate -- and probate fees. (Probate involves inventorying and appraising the property, paying debts and taxes, and distributing the remainder of the property according to the will.) When you make a living trust -- a device in which you hold property as a "trustee" -- your surviving family members can transfer your property quickly and easily, without probate. More of the property you leave goes to the people you want to inherit it.
Types of Living Trusts
The two most common types of living trusts are:
- a basic living trust (for an individual or couple), which avoids probate, and
- an AB trust, which both avoids probate and saves on estate tax.
This article discusses basic, probate-avoidance living trusts. For information on AB trusts, see Tax-Saving AB Trusts.
Unless you expect to owe federal estate tax at your death or your spouse's, a basic living trust to avoid probate is probably all the trust you need. (Fewer than 2% of estates -- those worth more than $2 million -- owe estate tax.)
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