Through the estate planning process, individuals can make plans for their assets and resources to be properly distributed among their heirs and beneficiaries. In some ways, though, estate planning is just the beginning of a much longer process. Following the individual’s death, their estate must be administered, their final affairs put in order and their wishes upheld. This may be done through either trust administration or probate administration.
While these two processes may sound similar, they actually have some significant differences. Foremost among them: Probate administration requires the involvement of the courts, while trust administration can be done without the courts.
But what are the other differences between probate and trust administration? And which one is ultimately the more advantageous process?
Probate and Trust Administration: Covering the Basics
When a person dies, any assets they leave behind are considered to be part of their estate. In most states, the default position for these assets is “probate estate,” which means they are subject to administration by the local probate courts. This process can be intensive, time-consuming, and costly, and in some cases may result in asset distributions that differ from the deceased’s stated intentions.
Alternatively, individuals may place assets into a valid trust before they die. These assets will form a non-probate estate, which means that the intervention of the courts can be sidestepped completely.
What is Probate Administration?
Probate administration is almost always required when someone dies and leaves only a will (as opposed to a valid trust). Indeed, while wills can be useful estate planning tools, they are insufficient for avoiding the probate process.
In most states, the courts offer two types of probate administration. First is formal administration, which is the standard option. Summary administration may be offered if a lot of time has passed since the deceased’s passing, or if the value of the estate is quite small. This is essentially an “express” version of probate administration, a bit quicker and less cumbersome.
No matter which type of probate administration is performed, the process begins in the same way: A representative of the deceased will file a petition with the local court, requesting that the probate estate be administered. Note that if the deceased left a will, it will likely stipulate who should serve as the personal representative, starting the probate administration process.
A judge will likely appoint the personal representative to administer the affairs of the deceased. This may involve any of the following tasks:
- Identifying, collecting, and protecting any of the items/assets included in the probate estate.
- Providing proper notice to any of the deceased’s creditors.
- Paying any creditor claims that are appropriate but disputing any invalid ones.
- Filing any applicable tax returns on behalf of the deceased, and paying any taxes required.
- Engaging appraisers and investment advisors as needed to help with valuation and administration of the probate estate.
- Distributing any remaining assets to the named heirs or beneficiaries.
- Submitting reports and paperwork to the probate court, signifying that the probate administration process has been carried out.
From there, the probate administration process will be closed by the courts.
What is Trust Administration?
Understanding the distinctions between probate and trust administration requires an understanding of how trusts function. Basically, trusts are estate planning tools that allow individuals to set aside certain assets, exempting them from probate administration. Instead, a “trustee” is named to fulfill a role very similar to that of the personal representative, handling the administration of the non-probate estate without requiring any intervention from the court system.
There are multiple types of trusts that can be used in the estate planning process. Often, a revocable living trust is used to ensure the contents of the estate are passed to a spouse, children, grandchildren, and other beneficiaries. Charitable giving trusts and special needs trusts may also be used for more specific goals. These more narrowly defined trusts typically have more stringent legal requirements, which can make the trust administration process just a bit more complicated.
Another key distinction between probate and trust administration is that administering a probate estate requires “closure” within a reasonable timeline. By contract, the terms of a trust may dictate that assets be distributed over the course of multiple years, even multiple decades. Indeed, certain types of trusts can be continued into perpetuity. So, while trust administration does not require involvement from the courts, it may require guidance from an estate planning attorney, which can speak to the trust’s specific requirements. Indeed, in both probate and trust administration, the personal representative or trustee will likely need to hire a number of experts, including investment advisors.
What if There is No Estate Plan?
We have established that having a will alone means assets will be handled through probate administration, while having a trust means assets will be handled through trust administration. But what happens when an individual dies with neither will nor trust; indeed, without any type of estate plan whatsoever?
The short answer is that their assets will default to probate court. In fact, this situation usually entails a much longer probate process, as there is no direction for the courts to choose a personal representative or to distribute assets in accordance with the deceased’s wishes. This also means there is a much greater risk of a dispute arising between family members, obstructing the probate administration process even further. All of that to say, having some kind of estate plan is essential, and specifically, having a trust can ensure a smoother process for the loved ones tasked with executing that estate plan.
Probate and Trust Administration: Choosing the Right Way Forward
Indeed, while the trust administration process is not without its complexities, it is often smoother, faster, and more private than trust administration, providing families with a chance to handle their affairs with little or no court involvement. For this reason, it may be useful to talk with an estate planning attorney about the benefits of choosing a path toward trust administration.
