When you die, the executor of your will or the trustee of your trust has the duty to pay any outstanding debts of your estate. The procedure of paying debts of the estate differs based on whether a trust or will was used. The main benefit of a living trust is probate avoidance. If you die with assets in your name alone, those assets go through a court proceeding called probate, which is when the will is used. The will and the probate proceeding are public for all to see. If you die with assets in your trust, those assets do not go through probate. Other benefits, in addition to privacy, of using a trust instead of a will include saving time and money, and avoiding will contests among family members. As part of a probate proceeding, creditors of the decedent (the person who died) have six months from the date of death to file a claim against the estate. The executor must pay the creditors from probate assets. If assets such as IRA’s, 401k’s, life insurance policies and annuities have named beneficiaries, those assets are not available to the decedent’s creditors. Instead, if the decedent named “estate” as the beneficiary, those assets are part of the probate estate and are available to pay creditors. Creditors need only search probate filings to locate their debtors, then file claims in court against the debtor’s estate. Both executors and trustees usually pay estate debts from liquid assets such as bank accounts and investments. If the debts exceed the liquid assets, real estate may need to be sold to raise sufficient funds. If the amount of the debts greatly exceeds the amount of assets in the estate, creditors and beneficiaries may be left with nothing and the estate is insolvent. In general, settlement of a trust is easier and faster than settlement through a probate proceeding. The trustee can access accounts immediately to consolidate multiple accounts and pay debts and expenses promptly. Real estate can be sold immediately. With a probate, the process can sometimes drag out for years including the official appointing of the executor, which can take months, followed by the six-month statutory time period for creditors to file claims, plus marshalling the assets, paying creditors, potential will contests by family members, and distributions to beneficiaries. So, if you want to make the settlement of your estate as easy as possible for your family and loved ones, which will save them time and money, you may want to meet with an experienced estate planning attorney to see if a living trust is right for you. Paul Kellogg is an attorney in Cincinnati with the Phillips Law Firm, Inc. Paul’s practice focuses on providing comprehensive estate planning and probate services to families and business owners, as well as serving as outside general counsel to entrepreneurs and businesses where he provides guidance and advice on a wide variety of transactions and disputes. He can be reached at (513) 985-2500 or via email at [email protected]. Please explore Paul’s other articles on estate planning and business on the Phillips Law Firm Blog page. The article is for educational and informational purposes only and does not constitute legal advice. Anyone contemplating taking legal action is urged to obtain proper legal advice from an attorney licensed in your particular jurisdiction.
ESTATE PLANNING CINCINNATI: WHY A TRUST IS EASIER TO SETTLE THAN GOING THROUGH PROBATE
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