You've probably heard that a living trust can keep your estate out of probate when you die. But how exactly does this work?
It's about ownership
When you die, the assets you own no longer have an owner. The owner is dead. The probate process allows the court to appoint someone to take ownership of the assets. That person (the executor or administrator) then has the authority to take possession and distribute those assets. If there is a will, the assets will go to the named beneficiaries. If there is no will, the assets will go to the heirs of the deceased.
The above is true unless the following occurs: Ownership passes automatically to another person by operation of law. If ownership passes by operation of law, there is no gap in ownership, and hence, no need for the probate court to bridge the gap.
When does ownership pass by operation of law?
There are a few ways in which this can happen:
- Pay-on-death (POD) account – POD accounts allow the owner to name a beneficiary of the proceeds, who becomes entitled to the funds when the owner dies. The bank will pay the beneficiary with no need to go to probate court.
- Transfer-on-death (TOD) deed – Similar to a POD account, a TOD deed allows you to name a beneficiary of certain real property. That beneficiary takes title after death without the need for probate. These deeds are new in California, so there is much uncharted territory. They are also somewhat limited, as you cannot name a contingent beneficiary. We recommend a living trust over this method.
- Joint tenancy – If real property is owned in joint tenancy, when one joint owner dies, their share automatically passes to the remaining joint tenants. The remaining joint tenants must execute and record an Affidavit of Death of Joint Tenant to confirm title, but probate is not required.
- Living trust – Explained below.
How does a living trust work?
When you set up a living trust and transfer title to the name of your trust, you now own the property as trustee, and subject to the terms of the trust. When you die, your successor trustee takes over possession of this property under the same terms. All they have to do to confirm title to real property is execute and record an Affidavit of Death of Trustee. For bank accounts and other assets, they show the institution a copy of the trust or trust certification to formally change title. There is no need for probate because ownership passes by operation of law.
Helix Law Firm can help you avoid probate
We can help you find the best ways to avoid probate for your assets, including setting up a living trust. We can also draft and record transfer deeds for your real property. This includes TOD deeds, although we do not recommend them in lieu of a trust.
If you're interested in learning more, please call us at (619) 567-4447 to schedule a free consultation.