When Carol died her two daughters did not know what to do. Carol failed to explain to Amy and Flo, her daughters, that she had created a Revocable Living Trust. Carol’s home and all of her securities had been titled in the name of her Revocable Living Trust (hereafter RLT). In addition to knowing she had taken care of her affairs prior to her death, what other benefits did she bestow on her daughters?
The biggest advantage given to the daughters is that they do not have to deal with probate. If Carol had not created and funded her RLT, her Will would have controlled who gets what after the assets went through probate. Probate? What is probate and why is it a problem? Probate is a supervised court process for monitoring the reporting and distribution of the assets of a decedent.
Let’s assume a worst-case scenario: Carol had an RLT and a Will but the RLT was not funded. In other words, Carol’s home and securities were still in her name at her death, despite the existence of her RLT. Is this possible? Yes, if the attorney or Carol did not get Carol’s assets retitled to her RLT. Stated differently, an RLT without assets is similar to a car without a motor. So, if her assets are not in Carol’s RLT, then her Will controls.
You may also be asking why is there a Will for Carol if she had a Trust. Why? Because sometimes for whatever reasons RLTs are not funded. In that case, the Will controls. Since assets were not put into Carol’s RLT the original of Carol’s Will must be submitted to a probate intake official along with a preliminary list of the decedent’s assets. If the intake official deems the Will to be valid, it will be accepted for probate and the case will be assigned to a Commissioner who will be responsible for monitoring the estate.
The Will should designate which daughter(s) will be the Personal Representative or Co-Personal Representatives for the estate. Let’s assume the Will says the Personal Representative will be Amy. The older, less used, name for Amy’s position is executrix.
Okay, what are the duties of Amy as the Personal Representative? Broadly speaking Amy’s position or job is to collect, report and distribute Carol’s assets. One of Amy’s first jobs is to file an inventory of Carol’s estate and pay the related fees. In Virginia the inventory is due within four months after Amy is qualified. Thereafter Amy must file the first accounting for the estate within 16 months of her qualification. After the first accounting, if future accountings are needed, they will be filed annually. Of course, there are probate fees to be paid based on the size of the estate.
Note that all these fees and steps are avoidable if Carol’s assets were placed in her RLT prior to Carol’s death.
The assets in the probate estate are usually distributed according to the wording in the Will. Often in cases like Carol’s where there is both a Will and an RLT, the Will may be referred to as a “pour-over” Will. Such pour-over Wills usually specify that after probate, the assets that went through probate will pour-over to the RLT. In such cases the dispositive wording of the RLT controls.
Can trust provisions be used in a Will? Yes, trust type provisions placed in a Will create a “Testamentary Trust”. Such “Testamentary Trusts” do not go into effect until the death of the Will creator and they are subject to all of probate problems mentioned above. Additionally, if a testamentary trust is used for a minor, annual probate reports will be needed for as long as the trust exists. Similarly, a testamentary trust for an adult, maybe a spouse, will require annual reporting and fees until the trust terminates. For example, in an actual case a testamentary trust was created in a 1977 Will, for a spouse now age 96. The creator of the testamentary trust died in 2004 and his estate has been filing annual probate reports for 22 years; and will continue to do so until the elderly spouse dies. Such 22 years of probate reporting could have been avoided if instead of creating a testamentary trust (a trust in a Will), a Revocable Living Trust had been used and funded.
The important message is to prepare an RLT like Carol did, fund it, and provide real benefits for your family.