How Probate Applies to a Revocable Living Trust in DC

Probate is the court process that is required to administer assets in a decedent’s sole name on the date of his or her death, and pass those assets on to either the beneficiaries of his or her last will and testament or the heirs at law as prescribed by the DC laws of intestacy in the event that a decedent died without a valid last will and testament.

The process of probate can be confusing and difficult to navigate, so it is very important to have an experienced attorney on your side who will help guide you through the process and will work to give you the best possible understanding of the process so you can make informed decisions regarding your case, particularly as it relates to having a revocable living trust.

Ways Assets Pass After Death

At your death, assets pass four ways. The first way that assets pass is by beneficiary designation. For example, life insurance policies pass outside of the probate administration procedure to the named beneficiary.

The second way that assets pass is by ownership. For example, assets that are owned by a married couple as tenants by the entireties pass by operation of law automatically at the death of the first spouse to the surviving spouse.

The third way that assets pass is pursuant to the terms of a trust, if the asset has been prefunded into a trust.

And the fourth way that assets pass is through the probate process. That means that the only assets that are subject to the probate administration process are assets that are in the decedent’s sole name on the date of his or her death, that have not been prefunded into the revocable living trust, that do not have a joint owner and that do not have a beneficiary designation.

Therefore, assets that have been prefunded into a revocable living trust avoid the probate process. A common misunderstanding is that assets that are in a revocable living trust also avoid estate taxes. Although the assets in a revocable living trust are not part of the probate estate, they are includable in the decedent’s gross taxable estate for the calculation of estate taxes.

Value of Probate

The decision to avoid probate is a consideration that must be made on a case-by-case basis. To determine whether or not avoiding probate would be a good fit for a client, the needs, desires, and capabilities of a client must be examined to see whether avoiding probate would be appropriate for that client’s estate planning needs.

Funding Concerns

There are certain assets that are not ideal to fund a revocable living trust. Generally, those assets are tax-deferred retirement assets. Typically 401Ks, some IRAs, or any other tax-deferred retirement assets may not be a good fit to fund a revocable living trust. That is because the income tax treatment of those assets is dependent on there being a measuring life to continue to defer income taxes.

For tax deferred assets, it can be very easy to trigger the lump sum taxation of those assets if they are transferred in to a revocable living trust. Although trusts can be created specifically to accept those assets, that is something that needs to be taken into consideration when deciding on which assets should be used to fund the trust.

Second, with regards to real estate, real estate transfers also require special attention. Real estate that is secured by a mortgage or a deed of trust often includes due-on-sale provisions in those documents. It would be important to check with the note holder or the lender to determine whether or not the transfer of the real estate into a revocable living trust would trigger the due-on-sale provision of the mortgage so that the mortgage would be accelerated rather than continued to be paid over a term of years.

Other Important Considerations

There can be some additional delay in probate. If proper estate planning has not been done or if there are other issues that plague an estate, an estate may need to be opened through a much longer court process. Furthermore, the probate process is a public process. Most court filings become part of the public record, and may be viewed upon request of any individual.

Generally, probate and the initial estate administration or trust administration alike take on average about a year to complete. The probate process is a public process, so most court filings becomes part of the public record. Individuals, even if they have no relationship to a case, may request to view a court file.