Role of Living Trusts in Maryland Probate Process

Many individuals are familiar with the type of trust called a revocable living trust. A revocable living trust is a free standing trust created and often funded during the creator’s lifetime.

A revocable living trust is an agreement drafted in writing signed by the settlor, or creator, which describes how the assets in the trust will be managed and eventually distributed. Revocable living trusts can be amended and revoked in part or in whole throughout the settlor’s lifetime as long as the settlor maintains the required capacity. After the creation and initial funding, assets can be added to the trust or removed from the trust.

Assets that have been previously titled during the lifetime of a settlor into a trust do not pass through the Maryland probate process, but instead are governed by the provisions of the trust documents. Although trust assets are not part of the probate estate, assets of certain trusts are included in decedent’s gross taxable estate for calculation of Maryland and/or federal estate taxes.

Definition of Living Trusts

During the settlor’s lifetime, the trust uses the settlor’s personal tax identification number and any income is reflected on the settlor’s personal income tax returns. Often assets in the trust are used for the benefit of the settlor’s health, education, maintenance and support during the settlor’s lifetime.

At the death or incapacity of the settlor, the trust becomes irrevocable and no further amendments or revocations can easily be made. At the death of the settlor, the trust applies for a new tax identification number and it is either maintained further in trust or distributed to the named beneficiaries.

Misunderstanding About Living Trusts

A common misunderstanding is that revocable living trusts shield the trust assets from exposure to federal or state estate taxes, commonly known as death taxes. All assets in the decedent’s control regardless of the titling are included in the gross estate for calculation of both federal and state estate tax purposes. The gross taxable estate includes the assets of the revocable living trust. However, assets properly funded into revocable living trusts do often avoid probate.

Another common misunderstanding is that the creation of a revocable living trust alone governs all of the settlor’s assets. The provisions of the trust documents only govern those assets that have been properly re-titled into the name of the trust. For example, if a client owned a real estate in his or her own sole name, the real estate must be re-deeded into the name of the trust for the trust provisions to govern the control of that asset.

Each trust document and each type of trust can be very different. An attorney can help advise on the advantages of using a revocable living trust as part of a comprehensive estate plan. An attorney can also advise or assist with properly funding a trust. If you have been named as a trustee or a beneficiary for a trust, an attorney can also help you understand the fiduciary obligations or rights that arise from that trust.

Reasons Not to Avoid Probate in Maryland

The probate process in Maryland can be very streamlined. If there are any assets are in the sole name of the decedent on the date of death, then probate will likely be necessary to transfer the assets. The probate process in Maryland also allows for some courts supervision of the personal representative and can provide more transparency to heirs or beneficiaries of the estate.

Furthermore, the probate process also allows for a six month creditor period for creditors to file claims against the decedent’s estate. Finally, another benefit of the probate process is that it can trigger the nominated personal representative to speak with the decedent’s attorneys, financial advisors and accountants so that the personal representative can learn about other deadlines such as tax filing deadlines that may be outside of the course of the probate procedure.