What’s the Difference Between Trust Administration and Probate

Your estate planning choices today–including making no plan at all–determine how your assets are passed on at your death. If you have a trust (usually a revocable living trust or RLT), the process of passing on your assets is known as trust administration. If you have a will, the process of passing on your assets is known as probate. If you die intestate (meaning with no estate plan in place), the process is called estate administration, which has essentially the exact same process as probate. In North Carolina, these are distinct processes each with benefits and burdens worth exploring.

What Is Probate in North Carolina?

Probate is a court-supervised process. Intestate estate administration has almost identical rules and requirements, so we will discuss both as “probate.” If a will is in place, the assets will be distributed by the will’s provisions or, if there is no will, by North Caroline intestacy law. Generally, the probate process involves several administrative steps:

1. The will must be filed with the Clerk and validated. In other words, the Clerk makes sure that the will meets all of North Carolina’s legal requirements.
2. If there is a will, the executor is appointed. If there is no will, the Clerk appoints an administrator who does the same job as an Executor.
3. All creditors of the estate are notified of the death and they have a fixed amount of time to make a claim against the estate for any outstanding debts.
4. Meanwhile, the executor or administrator must inventory the estate’s assets and if necessary have the assets appraised to establish their value.
5. Any outstanding debts and all tax liabilities are paid from the estate.
6. After the debts, taxes, and costs are settled, anything left over is distributed to the heirs according to the will’s terms or by North Carolina intestate law.
7. The Clerk closes the estate after the assets are distributed and the final accounting is accepted.

Probate is a public process. This means that anyone can access information about the assets and who they are distributed to. Not only can this feel invasive to a family that values their privacy, but bad actors can gain access to valuable information. The probate process can take anywhere from several months to over a year. Some of the factors at play include the number and complexity of the assets, any disputes that may arise, tax issues that must be resolved, and simply how busy the Clerk is.

What Is Trust Administration in North Carolina?

A revocable living trust is a legal instrument created by a grantor who wants to leave detailed instructions about how the assets are managed and distributed after death. To get the most use out of a trust, it must be properly formed and also properly funded. Funding a trust means titling assets in the trust’s name during the grantor’s lifetime or making other provisions to move the assets into the trust at death. That is how a trust helps to avoid the probate process. But the grantor does not lose control of those assets during the grantor’s lifetime because the grantor usually appoints himself or herself as the initial trustee. The trustee is the person or entity in charge of managing the trust. At death, the successor trustee named by the grantor in the trust takes over managing the trust–in other words, the trust administration.

The successor trustee has important responsibilities under North Carolina law. Similar to the probate process, the successor trustee must notify the trust beneficiaries, gather and safeguard the trust assets, pay the estate’s debts and taxes, and distribute the trust assets to the beneficiaries according to the trust provisions.

Key Differences Between Probate and Trust Administration

In summary, probate requires court oversight and trust administration, unless a dispute arises, does not. For this reason, the trust administration process is usually much shorter than the probate process. Additionally, the probate process creates a public record while trust administration is private. While probate requires court and filing fees, trust administration reduces those expenses; however, a trust typically costs more to create than a will. Finally, probate ends once the assets are distributed whereas trust administration may continue on if the trust directs the trustee to manage the trust assets for the beneficiaries.

How Can I Avoid Probate?

Probate distributes assets with clear structure and oversight. But because of the differences discussed above, some people want to avoid it. A well-crafted trust that is properly funded will likely avoid the probate process. But if any assets are not properly titled in the trust’s name, those assets may have to pass through probate. Additionally, if a dispute arises after your death, the court may have to resolve it. Finally, even without an estate plan in place, certain assets bypass probate. For example, assets held jointly with a right of survivorship, payable-on-death or “POD” accounts, and retirement plans with designated beneficiaries are not subject to the probate process.

Work with a North Carolina Estate Planning Attorney

Plan ahead for your family and loved ones. An estate planning attorney will help you determine the best course of action for you, your family, and your circumstances. While the differences between probate and trust administration may seem highly technical, the outcome can be significant. For guidance in handling a loved one’s estate or designing your own estate plan, Carolina Tax, Trusts & Estates, a Department of Van Camp, Meacham & Newman, PLLC can help you take the right steps now. Contact us today to start the process.