Rumor: “Probate should be avoided, so I will create a revocable living trust.”
Reality: In states like New Jersey and Pennsylvania, probate is an inexpensive, easy process. While there are good reasons to create a revocable living trust, avoiding probate is likely not one of them.
There is a false belief that probate should be avoided at all costs. The truth is efforts to avoid probate may be more costly!
Many people look to revocable living trusts as their ticket out of probate court. Except, the cost of creating the revocable living trust in some states is more than probate. Understanding the probate process in your state and what a revocable living trust is will help you decide if this is the right path for you.
Probate in New Jersey
When an individual dies, the probate process begins. In New Jersey, probate involves settling the decedent’s affairs, including validating the Will to transfer assets to the named beneficiaries and designating an estate executor or administrator (if there is no Will) through the Surrogate Court.
The executor must file a petition with the Surrogate Court in the county where the decedent lived. This petition costs less than $200 to file. There is also a form for the executor to fill out and submit with the Will, which generally takes about 15 minutes to complete. The probate clerk enters the information, and the Will submission process is complete.
There are circumstances that could make the probate process more complicated, lengthier and costlier. These include challenges to the Will’s validity, disputes over the Will, if there are many claims pending against the estate or if the assets include real estate located in another state. But in New Jersey, no matter the size or the value of the estate, the probate process is generally the same.
In some states, many people want to avoid probate court after someone dies because it can be a complex and lengthy legal process. In addition to the time and expense involved, probate court proceedings are also a matter of public record, meaning that the details of the estate and its beneficiaries can become publicly available. Further, probate court can also result in disputes among family members or other beneficiaries over the distribution of assets and property. By avoiding probate court in these states, people hope to ensure that their assets are distributed in accordance with their wishes and without unnecessary complications or delays.
Revocable Living Trusts
A revocable living trust is a legal document that allows someone to transfer ownership of assets to a trust. If an individual dies and owns no assets in his or her name but instead has previously transferred ownership of all assets to a revocable living trust, then there would be no assets to probate. The benefits of a revocable living trust include ensuring your assets are managed as you’d like them should you be unable to do so yourself and retaining control over those assets until or unless you are unable to do so because of incapacitation or death.
There are costs associated with setting up a revocable living trust that exceed the cost to submit a Will to the Surrogate Court in New Jersey. If avoiding probate is the sole reason for creating a revocable living trust, that is not a cost-effective reason to do so.
In addition to a revocable living trust, there are other estate planning tools to limit or eliminate probate. These include:
- Payable-on-death or transfer-on-death bank accounts
- Tax-free gifts
- Beneficiary designations on life insurance policies, IRAs, 401(k) accounts, annuity contracts and other retirement accounts
- Joint tenancy with right of survivorship, tenancy by the entirety with right of survivorship
This is the fourth in our Rumor v. Reality estate planning series. Watch for additional, helpful estate planning information in the coming weeks! Also in this series: