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Previous articles in this column have looked at probating a Will and alternatives to probating a Will. This article looks at family trusts and corporations as alternatives to probating a Will.
Probate is a court procedure established to protect the instructions and property of the deceased. Probate confirms the deceased’s Last Will and confirms the person authorized to look after the estate property, the Executor. For some people it may be very important to reduce the assets that form part of their estate. Second marriage situations, keeping family information out of public records, and avoiding potential creditors are the main reasons for considering alternatives to probate.
A family trust can be of assistance in these situations. Simply put, a trust is created when legal ownership of property is transferred to another person, the Trustee. The Trustee has specific powers to deal with the property which are set out in the Trust Agreement. The Trust Agreement also sets out how the property is to be used and who will receive the benefit of the property, the Beneficiary.
Advantages of a trust include:
- Control – when properly set up, the trust can be arranged to allow the person transferring legal ownership of the property to continue to control the property as Trustee.
- Continuity of Administration – property in the trust will continue to be administered after death because the property no longer forms part of the deceased’s assets.
- Confidentiality – the Trust Agreement is a private document. It does not have to be submitted to the Court for approval.
- Creditor protection – as the property no longer forms part of the deceased’s estate the property is protected from creditor’s of the deceased.
Another alternative to probate and a family trust is to transfer the property to a corporation. On completing the transfer the property becomes the property of the corporation and is not considered a part of the person’s estate on their death. The advantages of transferring property to a corporation are similar to the advantages of transferring property to a trust.
What are the disadvantages of using a trust or a corporation? If not properly carried out, the person transferring the property may lose control of the property. Tax consequences on the transfer of property must be considered. There are professional costs for both a lawyer and an accountant to set up and organize the transfer of property and the ongoing maintenance of the trust and corporation.
Whether or not a person should avoid or limit probate will depend on the estate planning goals of each individual. Trusts and corporations should be considered in reviewing your estate planning goals with your lawyer.
Estate planning allows you to decide what happens to your estate assets on your death. Each person’s estate plan is different as it depends on their unique estate planning goals. Trusts and corporations may be very useful to help you with your estate planning goals. If you have questions about your estate and your estate planning goals, you should contact your estate planning lawyer for further information.