Probate and Living Trusts
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The Truth About Probate In South Dakota
How does the probate process begin?
When a person dies owning assets in his or her name alone, an estate
must be started by a personal representative to handle the decedent's
assets and take care of settling the decedent's affairs. This is called
the probate or estate administration process. The personal
representative is called an executor in some states. The personal
representative can be an individual or corporation (such as a bank or
trust company).
What happens after an estate is started?
The job of the personal representative is to wind up the decedent's
affairs by notifying beneficiaries, gathering assets, paying debts and
taxes, accounting for all estate transactions and properly distributing
the estate. The personal representative is the only one legally
authorized to deal with the assets of the estate and handle matters of
estate administration.
Why is there a probate process?
Reasons for the probate process include prevention of fraud and
protection of creditors and rightful beneficiaries of estates.
Beneficiaries are entitled to notice of the estate administration and
an accounting of all estate transactions. They also have access to all
documents filed by the estate. The probate process in South Dakota is
an efficient way to protect beneficiaries and creditors and to assure
proper distribution of estate assets.
What are the costs of probate?
In South Dakota, the costs of probate include filing fees for opening
the estate, publishing a notice to creditors and preparing the
inventory of estate assets and other documents to complete the
administration process. The South Dakota court filing fee is relatively
modest in comparison to some other states. Other costs of probate
include legal fees paid to the attorney handling the estate work, which
may include preparation of certain death tax and income tax returns.
The personal representative may also charge a fee. Obtaining
appropriate legal advice about the administration of the estate can
help reduce costs as well as taxes. Legal counsel is also advisable in
dealing with assets which pass outside of probate, such as when a
living trust or property held in joint tenancy is involved.
Does probate take a long time?
In South Dakota, probate need not and normally does not take long in
comparison with other states. However, the time frame may depend upon
the type of assets involved and other factors. Personal representatives
are accorded broad powers to accomplish the estate administration
expeditiously. They are empowered to handle most details (liquidating
assets, paying debts and expenses, etc.) usually without seeking court
approval for each and every transaction. Personal representatives are
required to prepare only an inventory of estate assets. The accounting
of estate transactions to beneficiaries and heirs may be accomplished
informally (not involving the court) or formally (filed with the court).
Do all of a decedent's assets go through probate?
No. Assets held in joint ownership between spouses or with others with
right of survivorship pass automatically to the surviving joint owner
and are not subject to probate. Bank and brokerage accounts and
securities which have a payable on death (POD) or transfer on death
(TOD) designation also are not subject to probate. Assets with
designated beneficiaries such as life insurance policies, annuities,
IRAs and various retirement plans pass to the named beneficiaries and
are not subject to probate. Finally, assets held in a trust are
governed by the terms of the trust rather than the decedent's will and
pass outside the probate process. It is important to note that assets
controlled by the decedent at death, even if not subject to probate,
are still subject to all of the same death taxes as probate assets.
How does the probate process end?
The probate process ends upon receipt by the beneficiaries of their
proper share of the estate and the release of the personal
representative from further responsibility for the administration of
the estate.
The Truth About Living Trusts
What is a living trust?
A "living trust" is a legal entity to which your assets (bank accounts,
securities, house, etc.) can be transferred and managed by a person,
including yourself, or corporation (such as a bank or trust company)
called a "trustee". The trustee manages your assets in accordance with written instructions contained
in a trust document. Living trusts can be revocable or irrevocable.
Are living trusts something new?
No. Living trusts have existed for centuries. They are more formally
called "inter-vivos trusts" to distinguish them from "testamentary
trusts" which are contained in wills and take effect upon death. Living
trusts traditionally were and still are used for the management of
assets of those requiring or desiring such services.
Why am I hearing so much about living trusts now?
Today, revocable living trusts are heavily marketed as substitutes for
wills, often using exaggerated tales of costs and delays in the
administration of estates under wills (sometimes called the "probate"
process) as a sales tactic. Publicity has arisen from these sales
activities as well as from press coverage of fines and other sanctions
imposed by the South Dakota Attorney General on certain vendors of
living trusts.
Do I need a revocable living trust?
The answer depends on your unique family situation, financial position
and goals. In South Dakota, the benefit of creating a living trust for
the sole purpose of avoiding probate is debatable. This is because in
South Dakota probate entails relatively moderate cost and less time in
comparison to many other states. A personal representative named in a
will to administer an estate is accorded much flexibility in
decision-making, and courts do not become involved in each detail of
the estate administration process.
Does having a revocable living trust reduce taxes?
No. The federal estate tax treatment of assets is the same, regardless
of whether assets are administered through a revocable living trust or
under a will. Also, estate planning techniques designed to reduce this
tax are available under wills to the same extent they are available
under revocable living trusts.
What about legal fees?
Overall, legal fees may be more or less with revocable living trusts
than wills. For the provisions of a living trust to control, a trust
document must be prepared and your assets must be transferred to the
trust during your lifetime. This often entails significant legal fees.
On the other hand, a living trust may reduce or eliminate court filing
fees incurred after your death with a will. After death, both trustees
of living trusts and personal representatives under wills require legal
advice as to the proper payment of taxes and creditors, distribution to
beneficiaries, document interpretation and other issues. Also, a will
is advisable even if you have a living trust to provide for the
administration and distribution of assets not transferred to the trust
during your lifetime. Note that the reasonableness of legal fees
charged to trusts is judged by the same rules of professional
responsibility as legal fees charged to estates.
Are there disadvantages to living trusts?
If assets are distributed through a living trust instead of your estate
after death, beneficiaries will have no automatic legal right to the
notices required for estates. Trustees of living trusts who decline to
follow the procedures used by personal representatives under wills to
conclude the administration of estates may remain subject indefinitely
to personal liability, even after funds have been distributed. Also,
while personal representatives of estates are granted broad legal
authority to fully wind up a decedent's affairs, trustees of living
trusts have no authority beyond the assets placed in the trust.
How do I know what I need?
The only way to be certain your specific needs and desires are met is
to consult a trusted attorney or an attorney referred to you by a
trusted source. High-pressure solicitations by mail or in person should
be viewed with skepticism. Your financial and estate planning situation
is unique and should be accorded the proper time, attention and
expertise which only a properly trained and experienced attorney can
provide.
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